Impact of foreign institutional investor trades in Indian equity and debt market: a three-dimensional analysis
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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.
KeywordsForeign institutional investors Volatility Wavelet coherence NIFTY
JEL ClassificationC5 C40 E30 G1 G11 G23
We thank Prof. Vishal Gupta, anonymous reviewers and the participants at the “Fourth Pan–IIM World Management Conference” held at Indian Institute of Management Ahmedabad during December 13–15, 2016, for their useful comments. This article is a revised version of the paper presented at the conference.
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