Impact of Demonetization on the Indian Stock Market Returns and Volatility

Demonetization of old currency notes of denomination of rupees five hundred and rupees one thousand cam as an announcement by the Indian Prime minister, Sh. Narendra Modi on November 8th 2016. The currency notes of these denominations were drawn out of circulation and cannot be used as an official mode of payment. Demonetization is one of the historic moves initiated by Government to address the much bothering issues like black money & fake currency in circulation, address corruption & terrorism. The aim of this article is to study the impact of demonetization on Indian stock market returns and volatility as a whole and on banking sector which is expected to benefit from such move. The study employs data corresponding to two time periods, from 25th October 2016 to 25thNovember 2016 and second from 1st january 2016 to 30th June 2017 so as to study both the immediate effect and delayed impact on the risk and return. The study found no significant impact of demonetization on returns of the overall economy as well as banking sector but the volatility of the economy and that of banking sector has been reported to have declined