Abstract
AbstractThis study analyzes the sensitivity of a series of Indian stock indices for the astonishing component of monetary and macroeconomic policy with the data set from 1 April 2004 to 31 July 201...
Highlights
On theoretical grounds, the stock prices equate with that of the estimated value of the total future cash flow
The result is consistent for National Stock Exchange (NSE) Indices (NIFTY 50 proxy for large firms, and NIFTY 50 Midcap and NIFTY 100 Midcap are the proxies for medium-sized firms), except the small firms that are represented by NSE 100 SmallCap, which shows increased sensitivity. This finding is quantitatively different from the observations made by Thorbecke (1997), Kiyotaki and Moore (1997), Perez-Quiros and Timmermann (2000), etc., as in those studies, it has been shown that the response of stock returns to monetary policy is larger for small firms
The direction of Vector Autoregression (VAR) analysis result is different from the result obtained in event analysis, but the VAR analysis result confirms the findings of other sets of literature, Thorbecke (1997), Kiyotaki and Moore (1997), Perez-Quiros and Timmermann (2000), etc., in which it has been shown that the response of stock returns to monetary policy is larger for small firms
Summary
The stock prices equate with that of the estimated value of the total future cash flow. The paper explores the sensitiveness of industry-specific stock returns in relation to monetary policy and macroeconomic surprises. The sensitivity of a variety of Indian stock indices is considered in relation to unanticipated movements of macroeconomic indicators such as monetary policy, price indices, growth rates, industrial production, and current account. There are three motivations for evaluating the stock market reaction to macroeconomic and monetary policy surprises. For an investor, it is advantageous to be acquainted with the performance of specific stocks and to develop an obvious idea about the influence of macroeconomic events on sectorspecific, size-specific, and general stock market indices because most of these indices act as benchmarks for assessing the performance of existing investments, taking position for future index investment, and designing financial instruments such as options and derivatives
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