Does FII sway Domestic Equity Markets?

Yes. No. Maybe... says IMF. Using high-frequency data, some of the conclusions are:

• FII inflows into a domestic markets (16 emerging markets) has no statistical significance on domestic equity prices.
• Herding (measured by autocorrelation) is observed on longer terms (around 20 days) as opposed to short term (around 1 week). i.e., Investors chase returns in cases where there is a clearly observed profit taking opportunity. Is this because large investors actively influence opinions -- on Bloomberg chats or other trading information circuits.
• Causality is difficult to determine. i.e., Does inflow volatility cause returns volatility? Or is it the other way around?