Impact of Demonetisation on Industries in India – An Event Study Approach

This paper examines the impact of demonetisationon different industry sectors in India. The event ‘demonetisation’, which
declared the 1000 and 500 rupee notes in India as illegal tender, was announced on 8th November, 2016. In this paper, we
attempt to analyse the impact of the aforementioned event using Event Study Methodology on various industry indices in
India. We analyse the stock market performance of various sectors using 19 BSE industry indices. The result indicates on
average a short-term negative response to the announcement of demonetisation. Wealso find diversity in the performance of
various sectors by finding abnormal returns using asset pricing models such as Market model, Capital Asset Pricing model and
Fama French 3 factor model.
Keywords: Demonetisation, Event Study, Abnormal Returns, Cumulative Abnormal Returns

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