An Event Study on the Impact of Demonetization on Indian Corporate Bond Prices
This paper attempts to see the reaction of corporate bond prices on the demonetization announcement by the government of India, using the existing event study methodology like calculating abnormal returns, cumulative abnormal return and cumulative average abnormal return Using easily obtainable data sets of Nifty AAA rated corporate bond Indices from NSE website. The study revealed that there is a positive effect in the long term, medium term and ultra-long term NIFTY AAA rated corporate bond indices. CAAR from the date of the event, that is day 0, shows positive impact on return in corporate bond indices since the happening of the event. Cross section CAAR of six different indices of both 20 days and 30 days shows that there is a decrease in return before the event indicating that the market was uninformed about the happening of such event. This is true in the case of demonetization because the announcement was surprisingly made by the Prime Minister of India on the day Zero i.e. 8/11/2016. This announcement immediately reflected in the corporate bond market next day where increase in return and positive effect is observed even 15 days after the event. There was positive impact on almost all the six AAA rated corporate bond indices while the positive effect was little lesser in AAA short term and AAA ultra-short term corporate bond indices.
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