An Event Study on Abnormal Returns in Banking Sectors

What is it about?

The study aims to find the impact of Government announcement of infusing 2.11 lakh crores to hit NPA in the banks on share prices of the banks with high gross NPAs of their advances. Event study methodology given by Elton and Gruber, 2002 using daily returns and Ordinary Least Square (OLS) market model (Brown and Warner, 1985) is used in the study to find the pattern of share price movement with respect to the announcement. The event taken in the study is Government announcement of infusing 2.11 lakh crores to hit NPA in the banks made on 24th October, 2017. Parametric t test has been used to test the significance of the abnormal returns during the event window. The results indicated that the announcement has a positive and significant impact on the stock prices. There was a possibility to make abnormal gains. The cumulative abnormal returns of 5.7 per cent were generated in the event window.

Featured Image

Why is it important?

Event study, NPA, Semi strong form, OLS Market model, Efficient Market Hypothesis, t test.