Abstract

This paper investigates the relationship between NSE Market capitalization, NSE trading volume and foreign institutional investments in India using ARDL model for the period of April 2008 to March 2023 using monthly data. Through stock market, Foreign investors interact with the real economy, (Pal, 2010) so this effect of foreign investors via stock market on the country’s economic development will also be examined. Variables are examined using ADF test and ARDL Model. ADF is used to check the stationarity of the variables and ADRL is used to determine the relationship between variables. The Granger causality test is also used to measure the causal relationship exists between variables. The study found that the NFII series is stationary at level while other two variables are stationary at first differencing. The ADRL model found that (a) Market capitalization has positive relation with trading activities of FIIs and NFII is affected by Market capitalization, (b) FII trading activities are not affected by trading volume of stock market. The findings indicate that the net FII flow and trading volume has no relationship while there is unidirectional causality between market capitalization and NFII.