Reaction of Precedented and Unprecedented Events on the Indian Stock Returns

Abstract

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The purpose of the research paper is to study the market dynamics of Sensex, the share index in Mumbai, India, and its performance pre-election and post-election, which are considered to be precedented events, and during natural disasters and terrorist attacks, which are unprecedented developments. This paper has measured the impact of six positive and negative events on the Bombay Stock Exchange’s 30 share index Sensex. The data is collected from secondary sources focusing on time periods before the dates of the event and time periods after the event. Event study methodology was used to prove the impact of the event on the Indian indices. The study aims to ascertain whether the impact of these events on the indices were significant or not. The application of this study is in terms of clarity to retail investors in the short run, when market may be volatile in terms of prices and returns. Some of the investors may be swayed by projections of election outcomes or other unprecedented events and may try to time the market during that time period. The long-term investor may look at their financial goals and risk profile while choosing stocks for their portfolio, rather than being influenced by swings in the markets.

Keywords: Election Day, Lognormal Model, Market Sentiment, Volatility Effects, Efficient Market Hypothesis, Event Study Methodology

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