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Spillover effects of foreign institutional investments in India

Author

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  • Harendra Kumar Behera

Abstract

This paper examines the relationship between investments by foreign institutional investors (FIIs) and financial markets in India. By using a bivariate asymmetric BEKK-GARCH (1, 1) model, we find that FII investments are largely driven by profit opportunities available in financial markets. Granger causality-in-mean test results also validate these findings. Estimates from variance equation and Granger causality-in-variance tests provide the evidence of volatility spillover from FII investments to stock market and forex market. The results show the presence of volatility transmission from exchange rate movements to FII activity. However, we did not find any causality-in-variance from stock market to FII investments. The sub-sample analyses suggest an increase in volatility spillover from FII activity to financial markets in India during the post global financial crisis period.

Suggested Citation

  • Harendra Kumar Behera, 2017. "Spillover effects of foreign institutional investments in India," International Journal of Bonds and Derivatives, Inderscience Enterprises Ltd, vol. 3(2), pages 132-152.
    • Handle: RePEc:ids:ijbder:v:3:y:2017:i:2:p:132-152
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    Citations

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    Cited by:

    1. Tom Jacob & Rincy Raphael & Ajina V.S., 2022. "An Econometric Study Of Herding Behaviour Of Domestic Institutional Investors In Indian Capital Market: An Auto Regressive Distributed Lag Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 29, pages 29-46, June.
    2. Gaurav Raizada & Vartika Srivastava & S. V. D. Nageswara Rao, 2020. "Shall One Sit “Longer” for a Free Lunch? Impact of Trading Durations on the Realized Variances and Volatility Spillovers," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(1), pages 1-28, March.
    3. Harendra Behera & Rajiv Ranjan & Sajjid Chinoy, 2022. "Does offshore NDF market influence onshore forex market? Evidence from India," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(6), pages 1167-1185, June.

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