An Event study on the Impact of Demonetization on the Spot and Futures Returns of Commodities Traded in MCX.
Keywords:
Demonetization, commodity market, event study, MCX, Average Abnormal Return.
Abstract
This papers tries to contemplate the effect of demonetization on the futures and spot prices of Agri, Base metal, Bullion and Energy commodities. The study reveals that soon after the demonetization, market average return got increased in case of agri. and energy index. But decrease in market return could be observed in case of metal index. Overall, impact of demonetization is observed in spot market for all the commodities considered for the study. Whereas in the futures market, though there is an effect, it is at minimal level. Which may be due to prudent regulatory policies adopted by MCX commodity exchange with respect to futures market. The study shows that there is a significant impact in spot market for all the commodities for the short period of time. Later, the effect got reduced over long period. In case of Agri return and Bullion return, AAR got reduced after demonetization. In case of spot return of bullion and base metal during pre and post event, the average of AAR for the 10th and 25th day experienced both positive and negative impact. But 50 days after the event no impact is observed and it is almost similar to pre event period. In case of futures market also, in long term (50 days) the AAR is less compared short term (5 days), which means that only in short term there is an impact. In case of bullion and base metals the average AAR got almost similar with the pre and post event in the long term. Overall in the case of bullion and base metals in both spot and futures there is no impact of demonetization in long run.References
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Trifts, J. W., & Scanlon, K. P. (1987). Interstate bank mergers: The early evidence. Journal of Financial Research, 10(4), 305–313.
Zaima, J. K., & Hearth, D. (1985). The wealth effects of voluntary selloffs: Implications for divesting and acquiring firms. Journal of Financial Research, 8(3), 227–236.
Ahern, K. R. (2009). Sample selection and event study estimation. Journal of Empirical Finance, 16(3), 466–482.
Asquith, P., & Mullins Jr, D. W. (1983). The impact of initiating dividend payments on shareholders’ wealth. Journal of Business, 77–96.
Bowman, R. G. (1983). Understanding and conducting event studies. Journal of Business Finance & Accounting, 10(4), 561–584.
Brown, S. J., & Warner, J. B. (1980). Measuring security price performance. Journal of Financial Economics, 8(3), 205–258.
Cornett, M., & De, S. (1988). An examination of stock market reactions to interstate bank mergers. Journal of Banking and Finance, Forthcoming.
Dann, L. Y., & James, C. M. (1982). An analysis of the impact of deposit rate ceilings on the market values of thrift institutions. The Journal of Finance, 37(5), 1259–1275.
Fama, E. F., Fisher, L., Jensen, M. C., & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1–21.
Hite, G. L., & Owers, J. E. (1983). Security price reactions around corporate spin-off announcements. Journal of Financial Economics, 12(4), 409–436.
Keen, H. (1980). The impact of a dividend cut announcement on bank share prices. Department of Research, Federal Reserve Bank of Philadelphia.
Kumar, R. (2017). Effect of Demonetization on Analysts’ Estimates: A Natural Experiment.
Loughran, T., & Ritter, J. R. (1995). The new issues puzzle. The Journal of Finance, 50(1), 23–51.
McConnell, J. J., & Muscarella, C. J. (1985). Corporate capital expenditure decisions and the market value of the firm. Journal of Financial Economics, 14(3), 399–422.
Pettit, R. R. (1972). Dividend announcements, security performance, and capital market efficiency. The Journal of Finance, 27(5), 993–1007.
Ray, S., & Malik, N. (2014). Impact of transaction taxes on commodity derivatives trading in India. ICRIER Working Paper. Retrieved from http://icrier.org/pdf/working_paper_272.pdf
Schipper, K., & Smith, A. (1983). Effects of recontracting on shareholder wealth: The case of voluntary spin-offs. Journal of Financial Economics, 12(4), 437–467.
Schweitzer, R. (1989). How do stock returns react to special events. Business Review, 8, 17–29.
Shanmugan, V. P., & Champramary, R. (2016). CTT Infuses Inefficiency into Gold Futures Trading: An Empirical Analysis.
Smirlock, M. (1984). An analysis of bank risk and deposit rate ceilings: Evidence from the capital markets. Journal of Monetary Economics, 13(2), 195–210.
Sunil, T., & Shenoy, S. V. (2017). Impact of Demonetization on Stocks of Selected Sectors–An Event Study. International Journal of Research in Finance and Marketing, 7(5), 29–38.
Trifts, J. W., & Scanlon, K. P. (1987). Interstate bank mergers: The early evidence. Journal of Financial Research, 10(4), 305–313.
Zaima, J. K., & Hearth, D. (1985). The wealth effects of voluntary selloffs: Implications for divesting and acquiring firms. Journal of Financial Research, 8(3), 227–236.
Published
2018-07-29
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