Foreign Institutional Investment and Exchange-Rate Volatility in India: Asymmetric Spillovers, Shock Transmission, and Policy Effectiveness

This study investigates the impact of foreign institutional investment fluctuations on USD/INR volatility, considering volatility persistence, structural disruptions, global risk factors, and post-2019 regulatory and market-structure changes. The study uses EGARCH models with Narayan–Popp break controls, utilising 2,608 daily observations from 2015 to 2024. The findings indicate that the volatility of USD/INR exhibits significant persistence, with an implied half-life of around 60 trading days. Aggregate lagged FII shocks are not statistically significant in the baseline model; decomposed effects vary across specifications and break regimes. Moderation following 2019 seems restricted on a daily basis. The results suggest that the relationship is persistent, regime-dependent, and sensitive to breaks.