IMPACT OF GENERAL ELECTION ON STOCK MARKET: A CASE STUDY OF NSE INDIA

Abstract

Stock market is frequently used as a proxy to measure the economic health of an economy. This study examines the impact of the general elections and change in government on the stock market in India. The study covers four Indian general elections from 2004 to 2019. The study first verifies the linear relation between the market returns and securities returns and then employs event study methodology using secondary data from NSE India to calculate the abnormal returns. High variation in the daily stock returns is observed during the event period. Both positive and negative significant returns are found especially after the election results were declared. The paired t-test shows significant results for the 2014 election, suggesting that change in government has an impact on the stock market. The results further indicate that market shows more uncertain returns during the election held after the change in government i.e., 2019 election. The study suggests that, the investors should exercise caution during elections and adjust their investing strategy appropriately, particularly if a change in government is anticipated.