FIIs and Stock Market Volatility: A Case of Sensex and Nifty Returns
Keywords:
ARCH-GARCH, Asymmetric, Volatility, FIIs, Stationarity, Leverage.Abstract
Volatility is the amount of difference between an asset's current price and its mean or average price. The present study aims to investigate the impact of FII on stock market volatility. Using a variety of GARCH models, including GARCH (1,1), M-GARCH (1,1), EXPONENTIAL GARCH (1,1), and T-GARCH (1,1), it was discovered that volatility is high and persistent, but has no significant influence on returns. Asymmetric models demonstrate the presence of leverage effects in returns, meaning that negative shocks have a bigger influence on conditional volatility than positive news. Furthermore, when utilizing asymmetric models, FIIs have a considerable impact on the volatility of Sensex returns but not Nifty returns. AIC, SIC, RMSE, MAE, and Theil's U metrics were used to establish the optimal model, and according to the rule of thumb (lower the number, the better the model), EXPONENTIAL GARCH outperformed in terms of Nifty and Sensex returns.
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