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Monetary Policy Announcements and Stock Returns: Some Further Evidence from India

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  • Sashikanta Khuntia

    (Indian Institute of Technology (Indian School of Mines))

  • Gourishankar S. Hiremath

    (Indian Institute of Technology Kharagpur)

Abstract

We inquire into the nexus between monetary policy announcements and stock returns in emerging market economies. Drawing the sample from one of the important emerging economies such as India, we show that the Indian stock market is responsive to unscheduled and unexpected scheduled monetary policy announcements whereas the market was already adapted to the expected component of scheduled announcements. The evidence supports the rational expectation hypothesis. This study also finds the effect of policy change direction and monetary policy announcement as a kind of news (good or bad news) on specific sectoral stock returns. Further, we find banking, financial services and auto sectors are the most prominent in transmitting the objective of the monetary policy. This study documents the repo rate is relatively important monetary policy rate to affects the stock returns and response of sectoral returns vary across the instruments. Overall, the evidence from this study confirms the proposition that monetary policy transmission via stock market is significant.

Suggested Citation

  • Sashikanta Khuntia & Gourishankar S. Hiremath, 2019. "Monetary Policy Announcements and Stock Returns: Some Further Evidence from India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(4), pages 801-827, December.
    • Handle: RePEc:spr:jqecon:v:17:y:2019:i:4:d:10.1007_s40953-019-00158-y
    DOI: 10.1007/s40953-019-00158-y
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    Cited by:

    1. Oguzhan Cepni & Rangan Gupta & Jacobus Nel & Joshua Nielsen, 2023. "Monetary Policy Shocks and Multi-Scale Positive and Negative Bubbles in an Emerging Country: The Case of India," Working Papers 202305, University of Pretoria, Department of Economics.
    2. Aeimit Lakdawala & Bhanu Pratap & Rajeswari Sengupta, 2023. "Impact of RBI’s monetary policy announcements on government bond yields: evidence from the pandemic," Indian Economic Review, Springer, vol. 58(2), pages 261-291, September.
    3. Aeimit Lakdawala & Rajeswari Sengupta, 2021. "Measuring monetary policy shocks in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-021, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    Repo rate; Events study; Monetary policy; stock market; Interim meeting; Reserve Bank of India;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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