The Impact of Economic Events on Stock Market Returns: Evidence from India

Narayan Parab (), Ramashanti Naik () and Y. V Reddy ()

Asian Economic and Financial Review, 2020, vol. 10, issue 11, 1232-1247

Abstract: Stock markets act as barometers of economies; thus, a nation’s stock market returns are expected to be affected by not only domestic but also global economic events. This also raises questions about the validity of the efficient market hypothesis (EMH). This study therefore examines the impact of both expected and unexpected economic events on stock market returns in India, as represented by the benchmark NIFTY 50 Index and other sectoral indices. Using dummy variable regression models to determine the effects before, on, and after the date an event occurred, the current study concludes that despite investors’ immediate positive or negative reactions to economic events, their responses are short term and the Indian stock market quickly recovers. In addition, the findings contradict the EMH in the Indian context: unexpected economic events exert a greater impact than those expected, indicating the potential for investors and traders to earn abnormal profits when such events occur.

Keywords: Market efficiency; Efficient market hypothesis (EMH); Economic events; Dummy variable regression model; Indian stock market; Sectoral indices. (search for similar items in EconPapers)
Date: 2020
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