Indian Journal of Finance October
Total views : 78

Asymmetric Volatility of the Indian Stock Market and Foreign Portfolio Investments : An Empirical Study


  • Assistant Professor, Department of Commerce, Bishop Moore College, Mavelikara, Kerala, India
  • Associate Professor, Department of Commerce, C M S College, Kottayam, Kerala, India


Generally, a stock index may respond more to bad news (negative shocks) than to good news (positive shocks). It means stock market volatility may tend to be greater in a declining market than in a rising market. This behavior of stock return volatility is known as asymmetric volatility or leverage effect of volatility.  A healthy and vibrant capital market is important for economic development of a nation. In the present Indian scenario, stock prices inIndiafrequently deviate from fundamental values, and it is believed that these variations are mainly due to the presence of the most dominant investment group - foreign portfolio investors. This paper  attempted to analyze the stock return volatility, especially the asymmetric effect of Indian stock market return volatility and contribution of foreign portfolio investment to that volatility. The present study was conducted by taking daily data for a period of 12 years fromApril 1, 2003toMarch 31, 2015consisting of 2898 trading observations. To study the leverage effect and impact of FPI on stock market volatility, the study used ARCH family models; GARCH, E-GARCH, and TARCH. The results of the study confirmed the existence of volatility clustering and leverage effect in the Indian stock market. Hence, it was observed from the study that the investment activities of FPIs have had a significant impact on the volatility of the Indian stock market.


Foreign Portfolio Investors (FPIs), Foreign Portfolio Investment (FPI), Stock Return Volatility, Leverage Effect, Volatility Clustering, GARCH, E-GARCH , TARCH Models

C5, F2 , F4, F6

Paper Submission Date : January 10, 2016 ; Paper sent back for Revision : June 3, 2016 ; Paper Acceptance Date : May 25, 2017.


  • Akigray, V. (1989). Conditional heteroskedasticity in the time series of stock returns: Evidence and forecasts. Journal of Business, 62 (1), 55 - 80.
  • Banerjee, A., & Sahadeb, S. (2006). Modeling daily volatility of the Indian stock market using intra-day data (Working Paper Series No. 588). Retrieved from
  • Batra, A. (2004). Stock return volatility patterns in India (Working Paper No.124). Retrieved from
  • Bhattacharya, B., & Mukherjee, J. (2005). An analysis of stock market efficiency in the light of capital inflows and exchange rate movements: The Indian context. Retrieved from 20&%20Jaydeep.pdf
  • Biswas, J. (2005). Foreign portfolios investment and stock market behavior in a liberalized economy: An Indian experience. Asian Economic Review, 47 (2), 221-232.
  • Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31 (3), 307-327.
  • Dadhich, G., Chotia, V., & Chaudhry, O. (2015). Impact of foreign institutional investments on stock market volatility in India. Indian Journal of Finance , 9 (10), 22- 35. DOI: 10.17010/ijf/2015 /v9i10/79561
  • De, S., & Chakraborty, T. (2015). Foreign portfolio investment and stock market volatility in India. Indian Journal of Finance, 9 (1), 49 - 59. DOI: 10.17010/ijf/2015/v9i1/71535
  • Dhillon, S. S., & Kaur M. (2007). Foreign portfolio investment and stock market volatility in India: An empirical analysis. Journal of Global Economy, 3 (6), 295-306.
  • Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057-1072.
  • Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica, 50(4), 987-1007.
  • Goudarzi, H., & Ramanarayanan, C. S. (2010). Modeling and estimation of volatility in the Indian stock market. International Journal of Business and Management, 5 (2), 85-98.
  • Karmakar, M. (2005). Modeling conditional volatility of the Indian stock markets. Vikalpa, 30 (3), 21-37.
  • Kumar, S.S.S. (2006). Comparative performance of volatility forecasting models in Indian markets. Decisions, 33 (2), 26-40.
  • National Stock Exchange (NSE). Indian securities markets review (ISMR) 2012. NSE Mumbai. Retrieved from
  • Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica, 59 (2), 347-370.
  • Rai, K., & Bhanumurthy, N.R.(2004). Determinants of foreign institutional investments in India: The role of return, risk and inflation. The Development Economics, 42 (4), 479 - 493.
  • Srikanth, P. (2014). Modeling asymmetric volatility in Indian stock market. Pacific Business Review International, 6 (9), 87-92.
  • The Gazette of India. (2014). Securities exchange board of India (foreign portfolio investors) Regulations 2014. Retrieved from.


  • There are currently no refbacks.