Title: Volatility spillover from institutional equity investments to Indian volatility index

Authors: Vaibhav Aggarwal; Adesh Doifode; Mrityunjay Kumar Tiwary

Addresses: Indian Institute of Management, Lucknow, 226013, India; Pune Institute of Business Management, Pune, 412115, India ' Pune Institute of Business Management, Pune, 412115, India ' Indian Institute of Management, Lucknow, 226013, India

Abstract: The interdependence between stock market volatility and institutional flows in both developed and emerging economies have evolved over the past few decades. While earlier studies have mostly considered historical volatility, this study examines the relationship of both foreign and domestic equity flows with the implied volatility in the Indian stock markets measured by the VIX index. The period of the study is January 2010 to July 2019. We find that the value of net FII flows impacts the fluctuations in the volatility of the Indian stock market. However, the past volatility in FII flows does not impact the fluctuation in the volatility of the Indian stock market. Further, in the case of mutual funds, the value of flows does not significantly impact the fluctuation in Indian stock market volatility, but past volatility in net inflows does. This study can help investors to enhance portfolio return.

Keywords: volatility; spillover; stock market; GARCH; shock transmission; foreign institutional investors; FII; mutual fund.

DOI: 10.1504/IJMCP.2020.111020

International Journal of Management Concepts and Philosophy, 2020 Vol.13 No.3, pp.173 - 183

Received: 01 Jan 2020
Accepted: 05 Jul 2020
Published online: 05 Nov 2020 *

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