Stock Market Reaction towards Demonetization in India: An Empirical Study

This paper aims to empirically examine the reaction of Indian stock market towards demonetization with special reference to BSE Sensex and NSE Nifty. Demonetization has been one of the major moves of Government of India, which was initiated to curb black money and to ensure the digital financial inclusion in the country. This step has affected several sectors of the economy and one of the major sectors that have seen huge volatility during this period of demonetization is Indian stock market. Several studies have explored the fluctuations in Indian stock market against various micro and macro factors of the economy; however, there is a dearth of statistical evidence on the effect of recent demonetization on it. Hence, the present study is an attempt to explore the reaction of stock market during the period of demonetization in India. For the purpose of this study, the data on BSE Sensex and NSE Nifty has been collected for 45 days pre and 45 days post demonetization period, i.e. 1st September to 8th November 2016 and 9th November, 2016 till 12th January 2017. Further, the returns are computed for both the indices. Using Independent sample t test and Mann Whitney Wilcoxon test, the study exhibits a significant difference in the values of pre and post demonetization in both Sensex as well as Nifty. However, no significant results are obtained for pre and post demonetization returns on these indices. This shows that although Sensex and Nifty have significantly fluctuated due to this event, yet the overall returns have remained unaffected. The findings of this study have fruitful implications for investors, companies, and market at large.