Reaction of Indian Stock Prices to Select Economic and Political Events : A Study from 1991 to 2005. (With Abstract)

This paper analyzes the impact of select macroeconomic and political events on two popular Indian stock market indicesthe Sensex and the BSE 200. A total of 55 economic and 44 political events were identified from 1991 to 2005. A number of studies hitherto have examined the effect of macroeconomic events on stock prices but have mixed findings. Moreover, those studies have rarely incorporated political events. A series of paired t-tests were used in this study to compare the absolute returns for different periods (3, 15 and 30 trading days) around the event day. The findings from the 72 paired t-tests conclusively prove that both economic and political events have substantial effect on both the Sensex and BSE 200. However, the effect of economic events is found to linger for a few more days than the effect of political events. The relative long-run effect (30 trading days from the event day) of almost all the events gets nullified. During the entire study period, the Sensex and BSE 200 showed almost identical movements in response to the select events indicating that they do not affect just a select group of stocks, but the broader market in general.