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The sectoral effect of demonetization on the economy: Evidence from early reaction of the Indian stock markets

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  • Mohammad Shameem Jawed
  • Amol S. Dhaigude
  • Archit Vinod Tapar

Abstract

We investigate the impact of the Demonetization of 85% currency in circulation in India on the eve of 8 November 2016 on all the listed stocks spanning over 20 broad industry clusters (sectors) and their affiliation type from the Indian economy over the period of November to Mid-January 2016. Using the event study methodology, we assess the effects of Demonetization, relative to what had been anticipated, as measured by abnormal returns (ARs). The results indicate that Group Affiliated firms witnessed the highest negative abnormal returns both on the event days and during the event window period, while PSUs witnessed the least wrath. On the sectoral front, Demonetization shows a mixed effect in the early days which changes to positive for most of the sectors barring a few. Banking Sector was the worst hit in the early days with a CAAR of −1.74%, while many sectors like Pharma, Paper and Wholesale Trading witnessed a windfall gain in the long run.

Suggested Citation

  • Mohammad Shameem Jawed & Amol S. Dhaigude & Archit Vinod Tapar, 2019. "The sectoral effect of demonetization on the economy: Evidence from early reaction of the Indian stock markets," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1595992-159, January.
    • Handle: RePEc:taf:oaefxx:v:7:y:2019:i:1:p:1595992
    DOI: 10.1080/23322039.2019.1595992
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    Cited by:

    1. Som Sekhar Bhattacharyya & Praveen Nemana, 2024. "Effect of Demonetization on Advertising, Research & Development and Human Resource Intensities and its Impact on Firm’s Performance," Vision, , vol. 28(3), pages 361-373, June.
    2. 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.
    3. Chandan Sharma & Archana Singh & Rajan Yadav, 2023. "Impact of Competition in Credit Rating Industry: Evidence From India," SAGE Open, , vol. 13(1), pages 21582440221, January.

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