Authors: Parul Kumar; Sunil Kumar; R.K. Sharma
Addresses: Delhi Skill and Entrepreneurship University, Delhi, India ' School of Management Studies, Indira Gandhi National Open University, India ' Examination Department, Guru Ghasidas Vishwavidyalaya, Bilaspur, India
Abstract: This paper analyses the relationship between FPI and the implied volatility. The daily data have been used for analysing the impact of FPI, Nifty returns, S&P 500 returns and CBOE VIX (the proxy of volatility expectation in the US) on India VIX, the proxy for volatility expectations. The time period for this study starts from March 2008-December 2017. The overall objective of the study was to analyse the impact of FPI, Nifty returns, S&P returns, volatility of US market and interaction effect among them on the implied volatility index (India VIX). ARIMA GARCH has been used to test the hypothesis of the study. It was concluded that implied volatility is impacted by the FPI investment in India, Nifty returns, S&P returns and CBOE VIX. It was also found that the volatility has not increased by the emergence of FPIs in India, rather the expected volatility decreased with the increased investment by FPIs. Another observation from the study was that the past volatility affect was more on the future volatility as the GARCH effect was more as compared to the ARCH effect.
Keywords: GARCH; PGARCH; EGARCH; implied volatility; NSE; S&P 500; India.
World Review of Science, Technology and Sustainable Development, 2022 Vol.18 No.3/4, pp.289 - 308
Received: 05 Jun 2020
Accepted: 06 Jan 2021
Published online: 04 Jul 2022 *