Short-term market reaction to inflation announcement: evidence from the Indian stock market

Abstract

ABSTRACT This study investigates the reaction of stock returns to inflation announcements during the inflation switching regime from 2012 to 2018. In this paper, we have compared the broader market index NIFTY 500 vs. narrower market index NIFTY 50, and closing price vs. opening price. The study also checks if the state of the economy influences the stock market reaction. The finding of the study suggests that there are considerable abnormal returns. From a market efficiency perspective, we observe markets have become more efficient post the IT regime for both the stock market indices and also for both sets of prices.