Abstract
Market efficiency categorizes a stock market into three sections based on the reaction of share prices to private and public information. This paper mainly deals with reactions of stock market dynamics to information in political events considering the impact of result announcement of the Lok Sabha Elections 2019 on the Indian Stock market as reflected in the behaviour of share prices. Taking BSE 100 as the proxy market, daily closing stock prices of the 30 companies listed in BSE SENSEX was used. An estimation window of 120 trading days was taken prior to the event window. The standard Market model was applied to calculate the AAR and CAAR during the event window of 21 days. Further the Augmented Dickey Fuller (ADF) Test for unit root is applied to measure the stationary of the variables and the presence of ARCH/GARCH effect is tested to understand the volatility during the study period. The Runs Test was used to test the randomness of AAR and the paired sample t test was applied to check the impact of the event on the volume of trading. Consistent negative returns were observed following the event. But the absence of volatility and the insignificant results indicated that market efficiency Indian Stock Market is in a semi strong form.
Highlights
Bachelier (2000) in his thesis “Theory of Sepeculation” threw light into the concept of Stock Market Effeciency for the first time
The hypotheses of the study framed based on the above objectives are: H1: No Abnormal returns can be earned by trading stocks after announcement of election results H2: The Abnormal Return (AAR) and Cumulative Average Abnormal Returns (CAAR) throughout the event window are close to zero
The empirical results indicated the following: 1. The data for the event window are stationary in nature
Summary
Bachelier (2000) in his thesis “Theory of Sepeculation” threw light into the concept of Stock Market Effeciency for the first time. This study is an attempt to identify the semi strong form of efficiency of the Indian Capital Market around the announcement of the most anticipated event of 2019 i.e. the announcement of the Lok Sabha election results released on 24th May‟ 2019. Event study is statistical method to gauge the economic impact of an event on the market value of a firm. Its main objective is to examine the market‟s response to latest information released during an event announcement be examined as the a positive response to a good news as reflected by significant abnormal gains and a negative response to a bad news as reflected by significant abnormal losses determines the strength of the impact of an economic event
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