Abnormal Returns and Impact of Information of Natural Disaster on the Indian Stock Market

Abstract

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The capital market responds to precedent and unprecedented events. These events play an important role in market efficiency. The purpose of this paper is to elaborate the state of the stock market due to the recurring landslides in the Uttarakhand region in India. This study will help to determine the loss faced by the companies in the Indian stock market. Hence, analysing the “shock due to the natural disaster” in the stock market is an important issue. The study is based on secondary sources of information about various landslides in India. To calculate the “shock due to the natural disaster” in the stock market, we have employed event study methodology to measure this impact. The paper finds that a negative shock is brought by this catastrophic disaster on the Indian stock market. The impact of this shock is on each and every industry in the market; however, the most significant impact is felt by the top companies in the various industries. The market has shown a negative trend in its abnormal returns on and after the event day. Conversely, as the news of relief programmes were released by the government after three or four days, the market again started becoming normal.

Keywords: Natural Disaster, Indian Stock Market, Event Study, Cumulative Abnormal Return

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