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Impact of India’s Demonetization Episode on its Equity Markets

Author

Listed:
  • Goutam Sutar

    (Thiagarajar School of Management (TSM) Madurai)

  • Krantiraditya Dhalmahapatra

    (Indian Institute of Management Shillong)

  • Sayan Chakraborty

    (ICFAI Business School Hyderabad, ICFAI Foundation for Higher Education)

Abstract

Demonetization is an act of divesting a currency unit from its legal tender. In a developing country, the act of demonetization will have a direct influence on various sectors. An event study is an empirical analysis to investigate the effect of such unforeseen events. In this study, we investigate the impact of demonetization on the Indian stock market. For the analysis, daily data from the NIFTY 50 Index during demonetization have been analyzed within the observation of different event windows. These event windows are framed as 0–7 days, 0–14 days, and 0–30 days to understand the impact of demonetization during the analysis period 8th November 2016–21st December 2016. The study concludes that the impact of events on the Indian stock market lasted for a short time-period and the market recovered within 1 month. More precisely, in the case of demonetization, though the stock market initially viewed the event as disruptive, Cumulative Abnormal Returns bounce back to indicate that the negative financial impact was not as severe as the industry perceived.

Suggested Citation

  • Goutam Sutar & Krantiraditya Dhalmahapatra & Sayan Chakraborty, 2023. "Impact of India’s Demonetization Episode on its Equity Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 649-675, December.
    • Handle: RePEc:kap:apfinm:v:30:y:2023:i:4:d:10.1007_s10690-022-09392-6
    DOI: 10.1007/s10690-022-09392-6
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