Stock Market Reforms and Stock Market Performance

Natchimuthu N,Muhammadriyaj Faniband,Karthigai Prakasam Chellaswamy

doi:10.5430/ijfr.v12n2p202

Natchimuthu N, Muhammadriyaj Faniband + Show 1 more

Open Access

https://doi.org/10.5430/ijfr.v12n2p202

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Abstract

This paper analyses the impact of stock market reforms on the stock market performance in India using regression based event-study method. We consider nine stock market reforms introduced from 1998 to 2018. We find that the impact of stock market reforms on Nifty trading volume and Nifty return is different. This paper documents that the impact of the additional volatility measures, T+3 and T+2 settlement cycles, and margin provisions for intra-day crystallized losses reforms show a positive impact on trading volume post-reform. In contrast, internet trading, prohibition of fraudulent and unfair trade practices, delisting of equity shares, substantial acquisition of shares and takeovers listing obligations and disclosure requirements reforms decrease the trading volume post-reform. Our results of Nifty return reveal that the additional volatility measures, the T+2 settlement cycle, the prohibition of fraudulent and unfair trade practices, substantial acquisition of shares and takeovers, listing obligations and disclosure requirements have a significant and positive impact on return post-reform. It is evident that the impact of all nine stock market reforms is insignificant on Nifty return.

Highlights

The Government of India has taken adequate steps after independence to ensure the organized growth of the economy
The stock market reforms considered for this study are Additional Volatility Measures (AVM), internet trading, T+3 settlement cycle, T+2 settlement cycle, prohibition of fraudulent and unfair trade practices, delisting of equity shares, substantial acquisition of shares and takeovers, listing obligations and disclosure requirements and margin provisions for intra-day crystallized losses
The first sub-section summarizes the impact of stock market reform on Nifty volume and the second sub-section discusses the results of the impact of stock market reform on Nifty return

Summary

Introduction

The Government of India has taken adequate steps after independence to ensure the organized growth of the economy. Since India opened its economy in 1991, the Indian government has employed various policies to reform and enhance its underdeveloped stock market. In this context, it becomes imperative to evaluate the impact of such broad reforms on the performance of stock market in India. We attempt to examine the impact of nine stock market reforms introduced in India from 1998 to 2018 on stock market performance using the regression based event-study method. This paper focuses on the stock market reforms in India because of its increasing importance at the global platform and changing regulatory environment. It is important to look at the relationship between stock market reforms and trading volume. An analysis of stock market reforms and trading volume allows the investor to better interpret the market trends with the changes in the stock market. We choose Nifty trading volume and Nifty returns as dependent variables

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Conclusion