Institutional investment activities and stock market volatility amid COVID-19 in India

Figures & data

Figure 1. Time series plot of NIFTY and the COVID-19 confirmed cases in India.

Source: Author’s calculation.

Table 1. Summary statistics of level variables.

	NIFTY	FIIEP		FIIES	FIIDP	FIIDS	MFEP	MFES	MFDP	MFDS	COVID19
Mean	14328.54	7073.01		7285.71	1298.60	2109.36	3748.33	3542.54	8468.07	7828.15	267845
Median	14260.91	6045.05		6187.25	946.89	1542.84	3179.14	3185.64	8464.61	7230.28	49391
Max.	17126.07	26392.08		23967.09	7820.13	12428.95	10723.27	10990.62	20878.48	18007.58	1583792
Min.	10710.41	2590.15		2683.11	82.18	227.80	1391.07	1447.94	1847.12	2479.28	1
Std. Dev.	1613.19	3626.11		3389.41	1136.11	1951.04	1829.35	1640.24	2547.13	2792.14	403061
Obs.	119	119		119	119	119	119	119	119	119	119

Note: FIIEP, FIIES, FIIDP, and FIIDS denote the foreign institutional investors' equity purchase, equity sales, debt purchase, and debt sales, respectively in Rs. Crores. Similarly, MFEP, MFES, MFDP, and MFDS represent the equity purchase, equity sales, debt purchase, and debt sales of mutual fund managers. COVID19 denotes the number of confirmed cases due to the pandemic. The INR can be converted at the conversion rate of $1 = Rs 73 on average.

Source: Author’s calculation.

Table 2. Results of the unit root tests.

Variables	FII		MF		Conclusion
	ADF	KPSS	ADF	KPSS
Nifty Return	−13.482^a	0.366			I(0)
NETEP	−8.417^a	0.201	−8.664^a	0.359	I(0)
NETDP	−8.381^a	0.176	−6.745^a	0.389	I(0)
NETES	−6.976^a	0.345	−9.335^a	0.350	I(0)
NETDS	−4.139^a	0.387	−3.695^a	0.214	I(0)
GCOVID19	−9.998^a	0.517			I(0)

^arepresents statistical significance at 1% level. NETEP is the net equity purchase, NETDP is net debt purchase, NETES is net equity sales, and NETDS is net debt sales as defined in the methodology section. GCOVID19 is the growth of COVID19 confirmed cases. The ADF test has been conducted using five lags; an intercept is included.

Source: Author’s calculation.

Table 3. Contemporaneous relationship between institutional fund flows and stock return volatility.

	Panel (a)				Panel (b)
	FII				MF
	Model 1	Model 2	Model 3	Model 4	Model 1	Model 2	Model 3	Model 4
Constant	0.0015	0.0015	0.0016	0.0017	0.0026	0.0025	0.0033	0.0033
	[0.8737]	[0.8805]	[0.9573]	[1.0558]	[1.9028]^c	[1.8933]^c	[1.6086]	[1.5585]
Vol(-5)	0.8227	0.8110	0.7437	0.7308	0.8518	0.8382	0.7999	0.7864
	[10.2860]^a	[10.4889]^a	[9.4460]^a	[9.4667]^a	[9.5251]^a	[9.8091]^a	[12.0684]^a	[12.1180]^a
Return(-1)	−0.0947	−0.0957	−0.1402	−0.1406	−0.1158	−0.1170	−0.1326	−0.1334
	[-3.9487]^a	[3.900]^a	[-6.0787]^a	[-5.8782]^a	[-4.6373]^a	[-4.4964]^a	[-3.7846]^a	[-3.7686]^a
NETEP	−0.0045	−0.0032			0.0125	0.0124
	[-0.5728]	[-0.5172]			[2.0288]^b	[1.9497]^c
NETDP			0.0060	0.0052			−0.0013	−0.0005
			[2.2906]^b	[2.0743]^b			[-0.1399]	[-0.0552]
NETES	0.0347	0.0344			−0.0077	−0.0069
	[2.9005]^a	[2.9388]^a			[-0.8200]	[-0.7513]
NETDS			0.0137	0.0135			0.0233	0.0233
			[3.2723]^a	[3.2808]^a			[1.7590]^c	[1.8306]^c
GCOVID19		0.0017		0.0019		0.0019		0.0021
		[1.4495]		[1.7521]^c		[1.1695]		[1.6448]^c
Adj. R^2	0.831	0.831	0.843	0.844	0.800	0.801	0.810	0.811
L(Ø)	429.064	429.819	433.233	434.211	419.574	420.356	422.483	423.441
Wald F	29.175^a	29.997^a	30.399^a	33.930^a	50.071^a	42.827^a	44.234^a	44.153^a

^a, ^b and ^c represents statistical significant at 1%, 5% and 10% respectively; the t-statistics are reported in []. Model 1 and Model 2 are specified to represent the equity investment; Model 3 and Model 4 represent debt investments. The dependent variable is volatility (Vol) and is calculated as the square root of EGARCH (1, 1) variance. L(Ø) denotes the log-likelihood. The results are based on Newey-West HAC standard errors & covariance.

Source: Author’s calculation.

Table 4. Contemporaneous relationship between institutional fund flows and stock return volatility with interactive dummies.

	Panel (a)				Panel (b)
	FII				MF
	Model 1	Model 2	Model 3	Model 4	Model 1	Model 2	Model 3	Model 4
Constant	0.0051	0.0050	0.0034	0.0035	0.0079	0.0078	0.0106	0.0106
	[3.4804]^a	[3.2196]^a	[2.5435]^b	[2.5906]^b	[4.8743]^a	[4.6704]^a	[3.5218]^a	[3.3649]^a
D1	−0.0048	−0.0045	−0.0038	−0.0038	−0.0091	−0.0091	−0.0102	−0.0103
	[-3.2938]^a	[-3.0569]^a	[-3.0650]^a	[-3.0694]^a	[-4.1013]^a	[-3.9339]^a	[-3.2762]^a	[-3.1406]^a
Vol(-5)	0.8497	0.8438	0.8283	0.8228	0.8633	0.8607	0.7986	0.8006
	[14.4824]^a	[14.6608]^a	[14.3696]^a	[14.3940]^a	[12.6614]^a	[13.0182]^a	[22.5026]^a	[23.2368]^a
Return(-1)	−0.0765	−0.0773	−0.0835	−0.0842	−0.0845	−0.0850	−0.0696	−0.0692
	[-3.8226]^a	[-3.7567]^a	[-3.9150]^a	[-3.7677]^a	[-4.0143]^a	[-3.9217]^a	[-2.8285]^b	[-2.7681]^b
NETEP	0.0054	0.0061			0.0014	0.0015
	[1.0949]	[1.1813]			[0.3124]	[0.3247]
D1*NETEP	−0.0139	−0.0146			0.0046	0.0047
	[-2.1900]^b	[-2.2816]^b			[0.5823]	[0.5826]
NETDP			0.0043	0.0032			−0.0243	−0.0247
			[1.2461]	[0.9019]			[-1.4796]	[-1.4344
D1*NETDP			−0.0013	−0.0001			0.0246	0.0250
			[-0.3514]	[-0.0375]			[1.3617]	[1.3410]
NETES	0.0243	0.0249		0.9721	−0.0026	−0.0022
	[1.7509]^c	[1.7760]^c			[-0.2064]	[-0.1755]
D1*NETES	−0.0367	−0.0379			0.0042	0.0038
	[-1.9573]^c	[-1.9909]^c			[0.2646]	[0.2352]
NETDS			0.0144	0.0143			0.0216	0.0215
			[3.2957]^a	[3.2603]^a			[1.8869]^c	[1.8462]^c
D1*NETDS			−0.0141	−0.0140			−0.0181	−0.0179
			[-3.1857]^a	[-3.1680]^a			[-1.3285]	[-1.3033]
GCOVID19		0.0008		0.0008		0.0003		−0.0003
		[0.8567]		[0.9721]		[0.3217]		[-0.3690]
Adj. R^2	0.883	0.883	0.912	0.912	0.871	0.870	0.904	0.903
L(Ø)	451.962	452.195	468.106	468.378	446.090	446.128	463.086	463.124
Wald F	57.245^a	61.093^a	69.536^a	59.972^a	43.551^a	37.978^a	146.702^a	138.903^a

[^a, ^b and ^c represents statistical significant at 1%, 5% and 10% respectively; the t-statistics are reported in []. Model 1 and Model 2 are specified to represent equity investment; Model 3 and Model 4 represent debt investments. The dependent variable is volatility (Vol) and is calculated as the square root of EGARCH (1, 1) variance. D1 is the dummy variable that takes the value 1 when the average stock return for previous five days is positive on day t, and 0 otherwise. L(Ø) denotes the log-likelihood. The results are based on Newey-West HAC standard errors & covariance.].

Source: Author’s calculation.

Table 5. Dynamics of Interaction between fund flow and volatility (FII's sales on Equity and Debt).

Independent Variables	FII (Equity Investment)		FII (Debt Investment)
	Volatility	Net Sales	Volatility	Net Sales
Volatility(-1)	0.591	3.081	0.703	15.725
	[6.239]^a	[1.473]	[7.704]^a	[2.853]^b
Volatility(-2)	0.329	−2.205	0.220	−6.218
	[3.598]^a	[-1.093]	[2.376]^b	[-1.108]
Net Sales(-1)	0.011	0.251	0.002	0.192
	[2.500]^b	[2.468]^b	[0.790]	[2.043]^b
Net Sales(-2)	0.010	0.180	0.003	0.098
	[2.101]^b	[1.856]^c	[1.784]^c	[1.067]
constant	0.004	0.020	0.001	−0.023
	[0.544]	[1.406]	[1.045]	[-0.555]
GCOVID19	−0.007	−1.61E-05	−0.001	−0.066
	[-0.702]	[-0.008]	[-0.411]	[-1.156]
Adj. R^2	0.93	0.20	0.92	0.38

^a, ^b and ^c represents statistical significant at 1%, 5% and 10% respectively; the t-statistics are reported in [].

Source: Author’s calculation.

Table 6. Granger causality test.

X causes Y	Chi-squared	P-value	Does Causality Exist?
FIINETES → Volatility	14.605	0.000	Yes
Volatility → FIINETES	3.139	0.208	No
FIINETDS→ Volatility	4.482	0.106	No
Volatility → FIINETDS	23.266	0.000	Yes
MFNETES → Volatility	1.830	0.400	No
Volatility → MFNETES	0.029	0.985	No
MFNETEP → Volatility	1.737	0.419	No
Volatility → MFNETEP	3.955	0.138	No
MFNETDS → Volatility	0.118	0.942	No
Volatility → MFNETDS	6.712	0.034	Yes
MFNETDP→ Volatility	0.194	0.907	No
Volatility → MFNETDP	1.615	0.445	No

Source: Author’s calculation.

Table 7. Dynamics of Interaction between fund flow and volatility (MF's investment on Equity and Debt).

	MF (EQUITY) Net Sales		MF (EQUITY) Net Purchase		MF (DEBT) Net Sales		MF (DEBT) Net Purchase
Independent Variables	Volatility	Flow	Volatility	Flow	Volatility	Flow	Volatility	Flow
Volatility(-1)	0.697	−0.199	0.705	−2.356	0.729	3.767	0.726	−0.093
	[7.414]^a	[-0.107]	[7.232]^a	[-0.814]	[7.869]^a	[2.045]^b	[7.800]^a	[-0.049]
Volatility(-2)	0.272	0.118	0.258	3.731	0.252	−2.547	0.243	−0.676
	[2.896]^b	[0.063]	[2.684]^b	[1.306]	[2.680]^b	[-1.361]	[2.616]^b	[-0.359]
Flow(-1)	−0.005	0.203	0.002	0.203	−0.002	0.364	−0.001	0.347
	[-1.163]	[2.129]^b	[0.625]	[2.130]^b	[-0.218]	[3.917]^a	[-0.038]	[3.641]^a
Flow(-2)	−0.002	0.139	0.003	0.114	−0.001	0.229	−0.002	0.139
	[-0.462]	[1.568]	[1.029	[1.204]	[-0.135]	[2.402]^b	[-0.395]	[1.460]
Constant	0.001	0.044	0.001	0.023	0.001	−0.009	0.001	0.066
	[1.364]	[2.654]^b	[0.563]	[1.102]	[0.681]	[-0.662]	[0.830]	[3.146]^a
GCOVID19	−0.001	−0.016	−0.001	−0.009	−0.001	0.005	−0.001	−0.017
	[-0.334]	[-0.864]	[-0.588]	[-0.295]	[-0.342]	[0.281]	[-0.285]	[-0.874]
Adj. R^2	0.92	0.045	0.92	0.08	0.92	0.40	0.92	0.20

^a, ^b and ^c represents statistical significant at 1%, 5% and 10% respectively; the t-statistics are reported in [].

Source: Author’s calculation.