Copyright © 2026 Authors retain the copyright of this article. This article is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

@article{190064,
        author = {Devang Garg and Harshal Prasad and Kanishka Patel},
        title = {Impact of Foreign Institutional Investors on Indian Stock Market Volatility},
        journal = {International Journal of Innovative Research in Technology},
        year = {2026},
        volume = {12},
        number = {8},
        pages = {2773-2784},
        issn = {2349-6002},
        url = {https://ijirt.org/article?manuscript=190064},
        abstract = {This study examines the impact of Foreign Institutional Investor (FII) flows on stock market returns and volatility in India over the period January 2010 to December 2024. Using a comprehensive set of econometric techniques, the research analyses the dynamic relationship between FII investments and major Indian stock market indices—Nifty 50 and Sensex—while controlling for key macroeconomic factors such as exchange rates, global market returns, and volatility conditions. Descriptive statistics reveal that FII flows are highly volatile and exhibit non-normal characteristics, consistent with financial time-series behaviour. Unit root tests confirm stationarity of return series, while selected macroeconomic variables are integrated of order one.
Correlation and regression analyses indicate a strong and statistically significant positive relationship between FII net investments and market returns, suggesting that foreign capital inflows are associated with improved market performance. Granger causality tests reveal bidirectional causality between FII flows and stock market returns, with stronger evidence that market performance influences subsequent FII investment decisions, supporting the momentum-following behaviour of FIIs. Johansen cointegration results confirm the existence of a long-run equilibrium relationship among FII flows and market indices, despite short-term deviations.
Volatility dynamics are examined using GARCH family models, including GARCH, EGARCH, TGARCH, and GJR-GARCH specifications. The results show high volatility persistence in Indian equity markets and provide strong evidence of asymmetric volatility effects, wherein negative shocks and FII outflows amplify market volatility more than positive shocks of similar magnitude. Overall, the findings suggest that while FIIs contribute to market liquidity and returns, their withdrawal during periods of stress can exacerbate volatility. The study offers important implications for investors, policymakers, and regulators in managing market stability in an increasingly globalised financial environment.},
        keywords = {},
        month = {January},
        }