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Impact of Demonetization on the Indian Stock Market

Author

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  • Deepika Upadhyay
  • Swetha Wenona Suvarna

Abstract

Demonetization is the act of eradicating a currency unit from circulation. Indian economy witnessed this on 8 November 2017 when Prime Minister Narendra Modi announced that the two highest denomination currency notes, that is, ₹500 and ₹1,000 ceased to be legal tender. As most of the transactions in the country are based on cash only, the announcement resulted into huge hue and cry nationwide. It was estimated that approximately 86 per cent of cash was washed off from circulation. The currency notes that were rendered invalid were replaced by the new currency notes of ₹500 and ₹2,000 later. The article intends to investigate the impact of demonetization on the Bombay Stock Exchange (BSE). An event study methodology has been used to analyse the impact of the announcement on its most important index—S&P (Standard & Poor’s) BSE SENSEX index and the 30 top trading stocks which comprise S&P BSE SENSEX. The study period is divided into pre- and post-demonetization announcement. The empirical results indicate that there was no striking impact of the demonetization announcement on the stock returns during the period of the study.

Suggested Citation

  • Deepika Upadhyay & Swetha Wenona Suvarna, 2018. "Impact of Demonetization on the Indian Stock Market," Paradigm, , vol. 22(2), pages 175-184, December.
    • Handle: RePEc:sae:padigm:v:22:y:2018:i:2:p:175-184
    DOI: 10.1177/0971890718788226
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    References listed on IDEAS

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    2. Hooi-Hooi Lean & Marwan Halim, 2005. "Bivariate Causality between Exchange Rates and Stock Prices on Major Asian Countries," Monash Economics Working Papers 10/05, Monash University, Department of Economics.
    3. Mian Sajid Nazir & Hassan Younus & Ahmad Kaleem & Zeshan Anwar, 2014. "Impact of political events on stock market returns: empirical evidence from Pakistan," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 30(1), pages 60-78, May.
    4. Dimitrios Asteriou & Aristeidis Samitas & Dimitrios Kenourgios, 2013. "The London 2012 Olympic Games announcement and its effect on the London Stock Exchange," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 40(2), pages 203-221, May.
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