3. Introduction
• On November 8, 2016, a major monetary policy decision of
Demonetization was taken by the government which has an impact on
businesses and the economy as a whole.
• Shocked everyone
• Reasons of Demonetisation:
combat the issue of black money, counterfeit money, corruption,
stop the funding of terrorism, stop money laundering, and push the
country's inhabitants to use internet transactions,
• Prominent artificial disruption to the flow of money
• Ramification of the move that followed
4. Objective of the study:
• In recent years, a lot of research has been done to establish a relationship between
emergencies and equity prices focusing on natural calamities
• On the same lines various studies have been done on the effect of demonetisation on the
stock prices of various firms, industry, indexes, and so on.
• Major finding of these studies was that, the banking sector was most affected due to the
sudden increase in the deposits
• Underlying mechanism
• We will try to expand on the existing literature and try to find out the effect of demonetisation
on the firms which are dependent on banks for their borrowing
5. Flow of Literature Review
● Identify the monetary signal’s effectiveness in India and then
● try to find out whether the stock market is impervious to
monetary policy or not.
● Then we’ll go through some papers that will focus on the
effect of some events on the equity market of the countries
other than India and then we’ll move towards the event
studies that have been done in India.
● Then we’ll move to review some papers that have
investigated the demonetization news impact on India as a
whole and then in last
● We’ll review some paper’s that have examined the shock of
demonetization on Indian equity market.
6. Bhattacharyya, Indranil & Sensarma, Rudra
(2008)
Methodology
1. discuss briefly the empirical literature on the pass-through effect of
policy signals on financial market behaviour
2. empirically analysed the impact of changes in policy instruments on
various segments of the Indian financial market
Conclusion:
while the RBI’s policy actions had an impact in most segments of the
financial market (money market, foreign exchange market, government
securities market) in India, its impact on the stock market was negligible
Monetary Signal Effectiveness
7. Bhattacharyya and Ray (2016)
Methodology
● used event study methodology
● Impact was traced on:
1. Both scheduled and non-scheduled policy announcements
2. Foreign monetary policy announcements
Conclusion:
• Unanticipated policy announcements have weakly significant impact,
particularly on banking stocks.
• Dominance of the banking channel
Methodology
● used event study methodology
● Impact was traced on:
1. Both scheduled and non-scheduled policy announcements
2. Foreign monetary policy announcements
Monetary Signal Effectiveness
8. Benito (2005)
Then we tried to find out the dominance of bank lending channel
● Benito tried to find out the effect of financial pressure, and monetary policy at firm level
data
● provided support for the view that the monetary policy works through bank lending
channel, as there was evidence that during period following a monetary contraction,
the companies which are more bank dependent for their finance, the effects of
liquidity are strongest among them.
Bank lending channel
9. vent studies around the globe
Methodology:
1. used event study
2. used the market model
3. selected 160 trading days
before the event date as
the forecast period. We
choose every five trading
days around the event
occurrence date as the
event window period
Impact is traced on:
1. Industry-wide Analysis in
the Event Windows
2. Analysis of Various
Industries in the Event
Window
3. Impact of COVID-19 on
the Whole Industry
Conclusion:
COVID-19 hit the traditional
industries of China negatively
and more seriously but created
opportunities for the
development of high-tech
industries
Pinglin He, Yulong Sun, Ying Zhang & Tao Li (2020)
10. vent studies around the globe
Methodology:
1. An abnormal or
unexpected return
2. constant-mean-return
model as information set
3. test whether the averaged
CARs in the subsamples
“good news days” and “bad
news days” are different
Impact is traced on:
This paper investigates the
impact of the opening of US
stock markets on the German
stock market.
Conclusion:
1. German market reacts to
the US news
announcements which
typically precede the
opening of the NYSE.
2. Once important news is
transmitted, it is
processed rapidly.
3. Volatility is found to be
significantly higher on
news days
Thomas Dimpfl (2011)
11. Indian event Studies
The study examines the extent of the influence of the
lockdown on the Indian stock market and whether the market
reaction would be the same in pre- and post-lockdown period
caused by COVID-19
the market reacted positively with significantly
positive Average Abnormal Returns during the
present lockdown period, and investors
anticipated the lockdown and reacted positively
Mohammad Noor ALAM, Md. Shabbir ALAM, Kavita CHAVALI (2021)
12. Demonetisation
Methodology:
1. Potential credit creation
based on Reserve Ratios
2. Potential credit creation
based on historical trends
3. Mode of payment and
spending behaviour
Impact is traced on:
impact of demonetisation on
• the availability of credit,
• spending,
• level of activity and
government finances.
Conclusion:
Additional sudden deposits
can’t be interpreted as
additional balances that the
banking sector can lend out on
the same basis as earlier
deposits
NIPFP Working paper series
13. Demonetisation
R Jain (2017)
The public sector banks witnessed
an immediate positive effect on the
returns whereas the private banks
recorded a lagged negative impact.
impact of demonetisation on the
returns of 40 (private and public) listed
banks in India
Is Demonetisation a Windfall for the
banking sector? Evidence from the
Indian stock market
14. Demonetisation
Chauhan & Kaushik (2016)
Methodology:
1. impact of demonetization on Indian Stock
market
2.Using Event Study Methodology to analyze
the stock of S&P BSE 100 companies
Conclusion:
1. no significant impact of demonetization on
the stock market.
2. This short period downfall in the stock
prices can be due to some other factors
Anoop, Patil; Parab, Narayan; and Reddy,
Y. V. (2018)
Methodology:
various statistical techniques have been used
such as Graphical Analysis, Summary
Statistics (i.e. Mean, Standard Deviation,
Skewness, and Kurtosis), Augmented Dickey-
Fuller Test and GARCH Model.
Conclusion:
1. significant negative impact of
demonetization on stock market returns was
evidenced from Nifty 50 Index and sectoral
indices
Contradictions
15. Impact of the Demonetization on all the listed
stocks spanning over 20 broad industry clusters
(sectors) and their affiliation type
Event study methodology
Impact is traced on:
1. over 20 broad industry clusters (sectors)
2. their affiliation type (public Vs private)
3. Long run impact
Conclusion:
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
Mohammad Shameem Jawed, Amol S. Dhaigude & Archit Vinod Tapar (2019)
16. CONCLUSIO
N
• Difference between the financial
performance before and after
demonetization
• decrease/increase in the financial
performance was there irrespective
of their ages.
• Another interesting dimension of firm i.e., firm
age was used by them
• identified the impact of demonetization on
Indian firm’s performance.
• They have divided the companies into 3
categories according to their establishment year
and
• tried to examine whether company’s age
matters or not.
Mohammed H. Alsamhi Fuad A. Al-Ofairi Najib
H.S. Farhan Waleed M. Al-ahdal Ayesha
Siddiqui (2018)
And therefore, we decided to include firm age as a
factor in our study
17. Methodology:
• We will use stock prices of bank dependent firms to understand the impact of demonetisation based
on the premises of the stock market’s rational behaviour.
• Reason: Acc. to Berg (2012)
• Generally, to find a relationship between a monetary policy and the stock market, 3 broad strands are
used in the empirical literature.
• Since most of the market-wide studies of demonetisation on financial performance changes including
age as a factor do not seem to exist for India or even other countries, this paper will also consider age
as a factor
• There exists another dominance force in terms of size but not in numbers, is the government-owned
enterprises. And therefore, in this paper we’ll also try to see the impact of demonetisation on
government owned enterprises that are heavily dependent on bank for their need separately.
• Software used: StataSE 17 Data Source: ProwessIQ
18. References
1. Singh, C. (2018). India since demonetisation. IIM Bangalore, IIMB-WP N0. 567. 01-40. Bangalore,
India: Retrieved from https://www.iimb.ac.in/sites/default/files/2018- 06/Demonetisation.pdf
2. 2. Bhattacharyya, Indranil & Sensarma, Rudra. (2008). How effective are monetary policy signals in
India?. Journal of Policy Modeling. 30. 169–183. 10.1016/j.jpolmod.2007.07.003.
3. 3. Prabu A, Edwin & Bhattacharyya, Indranil & Ray, Partha, 2016. "Is the stock market impervious to
monetary policy announcements: Evidence from emerging India," International Review of Economics
& Finance, Elsevier, vol. 46(C), pages 166- 179.
4. 4. A. Benito Financial pressure, monetary policy effects and inventories: firm-level evidence from a
market-based and a bank-based financial system Economica, 72 (2005), pp. 201-224
5. 5. Pinglin He, Yulong Sun, Ying Zhang & Tao Li (2020) COVID–19’s Impact on Stock Prices Across
Different Sectors—An Event Study Based on the Chinese Stock Market, Emerging Markets Finance
and Trade, 56:10, 2198-2212, DOI: 10.1080/1540496X.2020.1785865
6. 6. Thomas Dimpfl, The impact of US news on the German stock market—An event study analysis,
The Quarterly Review of Economics and Finance, Volume 51, Issue 4, 2011, Pages 389-398, ISSN
1062-9769, https://doi.org/10.1016/j.qref.2011.07.005
19. References
7. ALAM, M. N., ALAM, M. S. and CHAVALI, K. (2020) “Stock Market Response during COVID-19
Lockdown Period in India: An Event Study,” The Journal of Asian Finance, Economics and Business.
Korea Distribution Science Association, 7(7), pp. 131–137. doi:10.13106/JAFEB.2020.VOL7.NO7.131.
8. NIPFP Working paper series, Demonetisation: Impact on the Economy cashless.pdf
(stellamariscollege.edu.in)
9. Jain, Ritika. (2017). Is demonetisation a windfall for the banking sector? Evidence from the Indian stock
market. Economics Bulletin. 37. 712-722.
10. Chauhan, Swati. (2017). IMPACT OF DEMONETIZATION ON STOCK MARKET: EVENT STUDY
METHODOLOGY. Indian Journal of Accounting. 1271. 972-1479.
11. Anoop, Patil; Parab, Narayan; and Reddy, Y. V., Analyzing the Impact of Demonetization on the Indian
Stock Market: Sectoral Evidence using GARCH Model, Australasian Accounting, Business and Finance
Journal, 12(2), 2018, 104-116. doi:10.14453/aabfj.v12i2.7
12. 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, 7:1, 1595992, DOI:10.1080/23322039.2019.1595992
