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

Sashikanta Khuntia () and Gourishankar S. Hiremath
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Sashikanta Khuntia: Indian Institute of Technology (Indian School of Mines)
Gourishankar S. Hiremath: Indian Institute of Technology Kharagpur

Journal of Quantitative Economics, 2019, vol. 17, issue 4, No 6, 827 pages

Abstract: 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.

Keywords: Repo rate; Events study; Monetary policy; stock market; Interim meeting; Reserve Bank of India (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G14 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s40953-019-00158-y

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Handle: RePEc:spr:jqecon:v:17:y:2019:i:4:d:10.1007_s40953-019-00158-y