Impact of Foreign Institutional Investor (FII) Flows on Indian Stock Market Dynamics: A Time-Varying Parameter Analysis

This study examines the time-varying impact of Foreign Institutional Investor (FII) flows on the Indian stock market (Nifty 50) from 2000 to 2024, using Time-Varying Parameter (TVP) models, including TVP regression, TVP-VAR, and TVP-GARCH. Findings reveal that FII flows significantly influence returns and volatility, with stronger effects during bullish phases and crises amplifying volatility via outflows. Macroeconomic factors (e.g., exchange rates, S&P 500) mediate these dynamics, with structural breaks identified during major events (e.g., 2008 crisis, 2020 COVID-19). The study underscores the need for adaptive regulations to manage FII-driven volatility, offering policy insights for enhancing market resilience.