Impact of foreign institutional investor trades in Indian equity and debt market: a three-dimensional analysis

P. Lakshmi () and M. Thenmozhi ()
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P. Lakshmi: Indian Institute of Technology Madras
M. Thenmozhi: Indian Institute of Technology Madras

DECISION: Official Journal of the Indian Institute of Management Calcutta, 2018, vol. 45, issue 3, No 2, 225-233

Abstract: Abstract Rising portfolio flows from foreign institutional investors (FIIs) into the Indian equity and debt market in the recent years have invoked extensive debate among media and academics. The present study lends support to this growing debate through a three-dimensional wavelet analysis that identifies the time, frequency and persistence of the co-movements between FII trading activity and India’s NIFTY index returns for the period between 2000 and 2015. The wavelet coherence findings suggest that persistent interdependence in volatility exists between purchase/sale transactions of FIIs and NIFTY returns at varying frequencies with FII activity leading the volatility co-movement. The findings imply that the Indian equity markets are vulnerable to portfolio flows warranting adequate resilience measures from policy makers.

Keywords: Foreign institutional investors; Volatility; Wavelet coherence; NIFTY (search for similar items in EconPapers)
JEL-codes: C40 C5 E30 G1 G11 G23 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40622-018-0183-y

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