Volatility of sensex and the role of foreign institutional investors

The Indian stock market has undergone many important changes in the recent past. These changes include the establishment of the central regulatory agency, Securities and Exchange Board of India (SEBI), enactment of the regulatory measures, the arrival of Foreign Institutional Investors (FIIs) in a large scale, introduction of screen based trading systems replacing the conventional open outcry system of trading; the replacement of the fourteen-day account period settlement system giving way to rolling settlements on T+2 basis; dematerialization of securities; demutualization of exchanges; and derivatives trading. These changes have not only attracted many new investors from various sections of the people, but also increased the possibility of more volatility in the market. This requires an in-depth analysis about the nature and extent of volatility in the Indian stock market by taking the Sensitive Index (Sensex) of the Bombay Stock Exchange (BSE) as the representative index. Thus, the objectives of this paper are:

To trace the degree of volatility in the Indian stock market with the help of different volatility measures; and

To study the role played by the FIIs in the Indian stock market.