Stock Market Reaction To Policy Change Announcements-Geetha-0417

Stock Market Reaction To Policy Change Announcement
STOCK MARKET REACTION TO POLICY CHANGE

ANNOUNCEMENTS
A dissertation submitted in partial fulfillment of the requirement for the

award of M.B.A Degree of Bangalore University.
By
GEETHA.B.R
04XQCM6030
Under the guidance of

Dr. T V N Rao
Professor MPBIM
M P Birla Institute of Management

Associate Bharatiya Vidya Bhavan
#43, Race Course road,
Bangalore-01.
M.P.Birla Institute Of Management Studies 1

DECLARATION
I hereby declare that this dissertation work entitled “STOCK MARKET
REACTION TO POLICY CHANGES ANNOUNCEMENTS is a bonafide
study, completed under the guidance and supervision of
Dr. T. V. N. Rao, professor Finance and submitted in partial fulfillment for the
award of MASTERS OF BUSINESS ADMINISTRATION degree at
BANGALORE UNIVERSITY
I further declare that this project is the result of my own effort and that it
has not been submitted to any other university/institution for the award of any
degree or diploma or any other similar title of recognition.

ACKNOWLEDGEMENT
This Project report has been made possible through the direct and indirect
cooperation of various people to whom I wish to express my deep sense of
Gratitude.
I am extremely grateful to my Internal Guide Dr. T. V. N. Rao, for his

valuable advice and guidance throughout the project, which has enabled me in
the successful completion of this project and whose constant backing and
support made my project a knowledgably and insightful experience.

GUIDE’S CERTIFICATE
This is to certify that Project titled “STOCK MARKET

REACTION TO POLICY CHANGE ANNOUNCEMENTS” has
been prepared by MISS GEETHA.B.R registration number
04XQCM6030 under the guidance of Dr.T.V.N. RAO.
This has not formed a basis for the award of any Degrees/Diploma
by any other University
Date:
Place: Bangalore Dr. T. V. N. Rao

PRINCIPAL CERTIFICATE
This is to certify that Project titled “STOCK MARKET

REACTION TO POLICY CHANGE ANNOUNCEMENTS ” has
been prepared by MISS GEETHA.B.R registration number
04XQCM6030 under the guidance of Dr.T.V.N. RAO.
This has not formed a basis for the award of any Degrees/Diploma
by any other University
Date:
Place: Bangalore Dr.NAGESH MALAVALLI

PAGE
SERIAL NO CONTENTS
NO
Introduction 7
Chapter 1 1.1 Efficiency Market 8

1.2 Event Study Methodology
11
Review of Literature
Chapter 2 13
Methodology
3.1 Research Problem
3.2 Purpose of Study
3.3 Objectives of Study
16-19
Chapter 3 3.4 Data and Sample Size
3.5 Event to be Studied
3.6 Period of Study
3.7 Methodology used
Data Analysis and Interpretations

5.1 Finding of log price
5.2 Regression of market return with stock return.
5.3 Estimation of the residual valves
Chapter 4 20-52
5.4 Averaging of Residual Valves and finding
Cumulative Abnormal returns
5.5 Charts of Cumulative Abnormal Returns
5.6 Analysis of Abnormal Returns
Chapter 5 Summary 53
Chapter 6 Findings and Conclusions 54
Chapter 7 Bibliography 55

Introduction and Background of Study

In the past few years there has been substantial increase in activities of Indian stock
exchange. Stock prices are among the most closely watched asset prices in the economy and
are viewed as being highly sensitive to economic conditions. Stock prices have also been
known to swing rather widely, leading to concerns about possible "bubbles" or other
deviations of stock prices from fundamental values, that may have adverse implications for
the economy. The stock market also plays an important role in allocation of capital
resources. The market is allocationally efficient when it maintains equivalent rate of return
on compatible investments for which it would channelise funds to those users who utilize
them most profitably. Consequently the efficiency of pricing mechanism influences the
performance of stock market. A number of studies have been conducted to find whether the
markets are efficient with respect to announcement of mergers and acquisition, bonus issue,
stock split and earnings announcement.
The interpretation of daily stock prices reaction to various news good or bad is a common
thing in India. Researchers and Analysts often comment about the Reaction of Stock Prices
to various announcements good or bad. The reports appearing in Financial Press is evidence
to this. The greatest amount of research in finance is devoted to the effect of announcement
on share prices .Academicians have studied stock market reaction to certain specific policy
changes by the government . These studies are known as event study it was under taken to
examine how fast the information was incorporated in stock prices. It is of great interest,
then, to understand more precisely how changes in government policy and the stock market
are related. Prices in speculative markets respond sensitively to events, including policy
actions and hints about policy actions, of all kinds.
This study aims at examining the impact of changes in government policy on the share prices
in three different sectors namely Banking, Pharmaceuticals and Information Technology

EFFICIENT MARKET THEORY:

An investment theory that states that it is impossible to "beat the market" because stock
market efficiency causes existing share prices to always incorporate and reflect all relevant
information. According to the EMH, this means that stocks always trade at their fair value on
stock exchanges, and thus it is impossible for investors to either purchase undervalued stocks
or sell stocks for inflated prices. Thus, the crux of the EMH is that it should be impossible to
outperform the overall market through expert stock selection or market timing, and that the
only way an investor can possibly obtain higher returns is by purchasing riskier
investments.
Although it is a cornerstone of modern financial theory, the EMH is highly controversial and
often disputed. Believers argue it is pointless to search for undervalued stocks or to try to
predict trends in the market through either fundamental or technical analysis.
While academics point to a large body of evidence in support of EMH, an equal amount of
dissension also exists. For example, investors such as Warren Buffett have consistently
beaten the market over long periods of time, which by definition is impossibility according to
the EMH.
There are three common forms in which the Efficient Market Hypothesis is commonly stated
- Weak Form Efficiency, Semi-Strong Form Efficiency and Strong Form Efficiency,
each of which have different implications for how markets works.

WEAK-FORM EFFICIENCY
 No excess returns can be earned by using investment strategies based on
historical share prices or other financial data.
 Weak-form efficiency implies that no Technical analysis techniques will be
able to consistently produce excess returns.
 In a weak-form efficient market current share prices are the best, unbiased,
estimate of the value of the security. Theoretical in nature, weak form efficiency
advocates assert that fundamental analysis can be used to identify stocks that are
undervalued and overvalued. Therefore, keen investors looking for profitable
companies can earn profits by researching financial statements.
SEMI-STRONG FORM EFFICIENCY

 Share prices adjust instantaneously and in an unbiased fashion to publicly
available new information, so that no excess returns can be earned by trading on that
information.
 Semi-strong-form efficiency implies that Fundamental analysis techniques
will not be able to reliably produce excess returns.
 To test for semi-strong-form efficiency, the adjustments to previously
unknown news must be of a reasonable size and must be instantaneous.
 To test for this, consistent upward or downward adjustments after the initial
change must be looked for. If there are any such adjustments it would suggest that
investors had interpreted the information in a biased fashion and hence in an
inefficient manner.

STRONG-FORM EFFICIENCY
 Share prices reflect all information and no one can earn excess returns.
 To test for strong form efficiency, a market needs to exist where investors
cannot consistently earn excess returns over a long period of time. When the topic of
insider trading is introduced, where an investor trades on information that is not yet
publicly available, the idea of a strong-form efficient market seems impossible.
Studies on the US stock market have shown that people do trade on inside
information.
 It was also found though that others monitored the activity of those with
inside information and in turn followed, having the effect of reducing any profits that
could be made.
 Even though many fund managers have consistently beaten the market, this
does not necessarily invalidate strong-form efficiency. We need to find out how many
managers in fact do beat the market, how many match it, and how many under
perform it. The results imply that performance relative to the market is more or less
normally distributed, so that a certain percentage of managers can be expected to beat
the market. Given that there are tens of thousand of fund managers worldwide, then
having a few dozen star performers is perfectly consistent with statistical
expectations.
The Efficient Markets Paradigm

The efficient markets paradigm surely has to be the starting point in understanding
speculative markets. According to this view, speculative markets respond efficiently as
market participants assess all relevant information—absolutely everything that might
influence market prices—and bid market prices up or down accordingly. Given that investors
bid current prices to levels at which risk-adjusted expected rates of return are equalized
across various investment alternatives, each new piece of information may move market
prices. The efficient markets model is not perfect, but it certainly goes far in explaining the
behavior of speculative prices.

EVENT STUDY
What is an event study? An event study, in economics/finance/accounting research, is an
analysis of whether there was a statistically significant reaction in financial markets to past
occurrences of a given type of event that is hypothesized to affect public firms' market
values.
EVENT STUDY METHODOLOGY

In event study analysis, the first requirement is event definition. The “event” is the
occurrence assumed to influence firm valuation. The potential effect of an event is measured
over a period of time surrounding the event in order to ensure that its information effect will
be captured. This period of time is the event window. A period of time prior to the event
window, called the estimation window, typically estimates the parameters of the model to
ensure accurate abnormal return analysis.
Methodologies vary as to how they calculate and test abnormal returns but most use a
variation on an efficient market model as the root of their calculation. This event study
analysis uses the market model to estimate returns. Efficient market models such as the
random walk, capital asset pricing model (CAPM), constant-mean return model, or
market model all offer alternatives for empirical testing. Efficient market models assume
abnormal return, or the actual ex post return of a security less the normal return, measures the
impact of an event.

STEPS INVOLVED IN THE METHODOLOGY
1. Collect a sample of firms on whom there may be an impact of announcement.

since positive or negative have different impact the sample of firms are grouped
into two categories
2. Determine the precise date of announcement and designate this date as zero most
current study uses daily data while a few of them use monthly data .some use
intraday data also
3. Define the period to be used. if we study 60 days period we designate -30,-29,...
-1 as days prior to date of announcement and +1,+2,....+30 as days after the event
4. For each of the firm in the sample compute the return on each of the days being
studied.
5. Compute abnormal returns for each of the days being studied for each firm in
the sample. Abnormal return is actual return minus expected return.
6. Compute for each day in the event period the Average Abnormal Returns for all
the firms in the sample. We normally look at average effect rather than each firm
separately.
7. Often the individual days Abnormal Return is added together to compute the
Cumulative Abnormal Return from the beginning of the period.The charts are
drawn to give a visual view.
8. Examine and analyze the results. Having performed the analysis conclusions are
drawn

Maurice et.al (1977)have conducted a study which presents evidence that the information
contained in quarterly earnings was not fully impounded into the stock prices at the time of
announcement, over the period of study . A Random Sample of 96 firms was chosen from
Industrial Companies listed on New York Stock Exchange. Quarterly Earnings
Announcement and Announcement Dates were collected from Wall Street Journal Weekly
price and Dividend data were also collected. Market Index was Dollar Weighted Index of 96
stocks. Ball and Brown Method of Residual Analysis were used. Earnings Announcement
was classified as Favorable, Neutral and Unfavorable. Conditional Expectancy Model based
upon Security Market Line, is used to find residual weekly return and then index of price
adjusted ment for different categories of announcement is calculated.
Two Naive Expectancy model used are
Model 1 =Ej.q = E j.q^-4
Ej.q= EPS of a firm j in quarter q
Model 2 =Ej.q-Ej.q + (1/3)[(Ej.q ^-1– Ej.q^-5)(Ej.q^- 2 –Ej.q^-5)(Ej.q^-3 –Ej.q^-6)
These residues were used to construct both abnormal performance and cumulative abnormal
performance indices The study suggests that price adjustments to the information concerning
security valuation in unexpected highly favorable quarterly earnings reports are gradual
rather than instantaneous.
Another study by Robert Clark (1980) is with reference to U S Economy where regulated
electric utilities faced financial problems because prices have often increased faster than rates
adjusted to be charged to consumers. In the Presence of this regulatory lag stock holders had
to absorb the differences between revenues and unexpected increase in energy costs
Subsequently many states in the U S economy allowed the use of Fuel Adjustment Clause
(FAC). This clause allows the firm to adjust the prices of electricity charged to consumers at
frequent intervals whenever the prices of fuel deviates from some fixed base price.
The basic result of this indicate that use of FAC in early part of 1970’s reduced systematic
risk of electric utilities in general by approximately 10 %.The results indicate that actual

returns to stock holders after the use of FAC tend to be less than expected but this was due to
the fact that utilities as a whole had negative returns
The period of study was January 1965 to January 1974 the firms investigated are large
electric utilities whose stock has been traded on New York Stock Exchange. The Empirical
Evidence from the paper indicate that the use of fuel adjusted clause by electric utilities in
early part of 1970’s did have an impact on these firms systematic risk as expected .A
decrease in firms systematic risk resulting from use of FAC will decrease the firms cost of
equity . In an efficient market the investors would bid up the prices of the firms share until
expected return confirmed to its corresponding risk the sudden upward movement in share
prices of the firm would result in wind fall gain for existing share holders to test possible
windfall gains we will examine residual returns of stock holders.
The study conducted by Hagerman (1984), et al was to test whether risk adjusted stock
price are a function of magnitude of quarterly earnings informational signals and there is a
Marginal Information effect of annual versus Fourth Quarter Earnings Informational Signals
.This study is an important extension to the Seminial Work conducted by Ball and Brown
which examined association between Quarterly and Annual Earnings forecast errors and Risk
Adjusted Stock Prices.
Moreover Beaver Clarke and Wright who studied association between unsystematic security
returns and Magnitude of Annual Earnings Forecasting Errors .Wall Street Earnings
Announcements dates were collected for Randhom sample of 215 firms over a period of
1974 to 1976 these sample were constrained to be NYSE or ASE firms to have fiscal year
end over the time period and to be listed on COMPUSTAT quarterly industrial tape. Stock
Returns were taken from CRSP daily return file and Quarter Earnings from aforesaid
COMPUSTST tape.
The study assumes that annual earnings follow pure Random Walk Hypothesis and Quarterly
Earnings follow some type of Seasonal Random Walk Hypothesis. Cumulative Risk
Adjusted stock returns are found and three return generating models are used to determine
expected security returns models are Market Model, Mean Return Model and Scholes and

Williams Model. They were tested both for securities and second was for portfolio of 25.
Regression analysis was also used where ever necessary.
The results reported, provide a strong evidence for above study. It also said that fourth
quarterly information signal is more highly associated with risk adjusted stock returns than
annual signals immediately around public release of these contemporaneous information
signals.
A study by J Ramachandran(1988) aims at examination of weak and semi strong form of

efficiency of pricing mechanism and Bombay stock exchange it also attempts to estimate the
stock market speed of adjustment to information The period of study is 6 year period starting
from January 1976 and ending with December 1981.Two approaches have been used to
investigate into weak form of market efficiency one is for statistical independence of
successive price changes And second approach involves direct testing of filter rules. In case
of semi strong form of efficiency impact of issue of bonus shares was studied Market model
was used for this purpose methodology based on Stewart control chart was employed for this
purpose The result indicate market tends to co orborate the new information made available
with other information at its disposal
The study by Subramaniam (1989) is similar to the above study. The daily closing price of
forty five securities and financial express equity index for the 8 year period between 1/1/1979
to 31/12/1986.The economic times and financial express of period were referred. Fifteen
major political events were identified. The speed of reaction of market factor and 45 scripts
have been computed the mean variance of market factor returns outside the period was
drawn. For individual securities the methodology used was by Fama and Fisher and Jensen.
This market factor and individual securities behavior prior to the occurrence of the event
supports Efficiency Market Hypothesis .However post event adjustment time is on higher
side. The long post event adjustment time around dates of events indicate that the market
may relatively efficient for some kind of events and may be relatively not efficient for some
other events .If the relationship between an event and security prices are characterized by low

complexity and high clarity the market would possibly be more efficient to this events for
other events
RESEARCH PROBLEM:
“Empirical study of Stock Market Reaction to Policy Change Announcements”
PURPOSE OF STUDY
The purpose of this study is to examine the adjustment of stock prices to announcements of
changes in Government Policy .The announcement was in relation to Banking,
Pharmaceuticals and Information Sector. To find strong evidence in supporting of semi
strong form market efficiency a scientific study called event study is conducted. It’s done to
find whether there are any abnormal returns or not. Semi strong form of market efficiency
implies that no abnormal returns should consistently occur after the announcement date.
Several studies done before support this theory
PERIOD OF STUDY
The Period of Study is different for 3 Sectors:
 For Banking Sector it’s from 10th September 2005 to 1st June 2006 and the
Date of Announcement is 20th Feb 2006. The period of 90 days before the event and
60 days after the event.
 For Pharmaceutical Sector it’s from 15th September 2005 to 2nd June 2006
and the Date of Announcement is 19th Jan 2005. The period is 90 days before and 90
days after the Date of Announcement.
 The period of study is from 23rd October 2000 to 12th June 2001 and the
Date of Announcement is 28th February 2001 the event period is 90 days before and
90 days after the event.
DATA AND SAMPLE SIZE

The data is collected for five different companies in a particular sector .The event window
consist of 90 days before and 90 days after the event. The bench marks used are Nifty,
Bankex, and Lifex. The software used includes SPSS and MICROSOFT EXCEL .T test is

conducted for average abnormal returns to find whether the results are statistically significant
or not. The data for the event period is collected from the issues of Economic Times and
from National Stock Exchange Websites.:
OBJECTIVES OF STUDY
 To ascertain the impact of industry specific announcements on the return of the stock
prices of that particular sector.
The impact may be different for different sectors. The share prices of different companies
may react differently to the announcement. Some may react so volatively that there may
be a chance to make abnormal returns. While in some cases it may not. The question
concerned is whether an investor can make short term profits by buying on
announcement date or make long term profits by buying on announcement date and
holding over a longer period of time
 To determine the time period with in which the stock prices adjusts itself to the new
information.
The time taken for the share prices to adjust itself to the new information may be
different for different companies. The time taken to adjust may also depend on market
efficiency. If it takes a long time investors can make abnormal profits until it adjusts
itself.
EVENT TO BE STUDIED
 Repo and Reverse Repo Rates hiked by 25 basis points by Reserve Bank on
February 06 th 2006
 Finance minister Mr. P Chidambaram decide to levy excise duty on
Maximum Retail Price of drugs on January 19th 2005
 Exemption of 100% of profits derived from export outside of India in
Connection with development of computer software on 28th February 2001

COMPANIES CONSIDERED
BANKING SECTOR PHARMACEUTICAL I T SECTOR

SECTOR
 Canara Bank  Cipla  Tata Consultancy
 SBI Bank  Ranbaxy  Infosys Technology
 UTI Bank  SunPharma  Wipro
 ICICI Bank  Glaxo  Satyam
 HDFC Bank  Dr Reddy  HCL Technology
METHODOLOGY:
Event study methodology is used to calculate Average Abnormal Returns and Cumulative
Average Abnormal Returns around the date of announcement
R it = Ln(Pit/Pit-1)
Where, Pit and Pit-1 are respective closing daily prices for company i at time t and
t–1.
The expected returns on a stock have been estimated using the market model of Sharpe
(1964):
R it= á +â *R m t+ it
Where R it is the return on security i at time t, R m t is the return on the market index
at time t, á is the estimate of the intercept for share of company i, â is the estimate for beta of
share of company i, and it, is the independently and identically distributed residual error
term. In the next step we compute the ‘abnormal’ returns for each of the sample company for
the window period. Abnormal return is defined as the actual return minus the expected
return.

The abnormal return for company i on day t is calculated as:

AR it = R it – á – â* R m t
In order to eliminate the effect of any one or group of securities on the abnormal returns, the
AARs are averaged over the number of companies. The AARs of individual companies are
averaged for each day using the following model.
N

(AAR t)= i 1 AR it/N
With a view to know the cumulative effect of AARs on days surrounding the event,
cumulative Average Abnormal Return (CAAR) is calculated for event days t1 through t2 by
summing the average abnormal returns for these days: i.e.,
t2

(CAAR d)= t  t1 AAR t
‘ t ’ TEST:
‘t’ test for difference of mean is also calculated to find out if there is any change in abnormal
returns before and after the event. To find whether there is significant difference in mean
before and after the event. The ‘t’ test is conducted at 5% level of significance
Formula used
=│‾X -‾Y│∕ Sd
SD ={(S1^2/N1)=(S2^2-N2)}^½
SD = Combined Standard Deviation
N= Number of Samples
X =Mean of Sample before Date of Announcement
Y= Mean of Sample after the Announcement Date

ABNORMAL RESIDUAL VALUES BY SPSS SOFTWARE
UTI SBI HDFC ICICI CAN BK BANKEX

0.01328 0.01049 0.00025 0.01941 0.00612 0.01213
0.02266 0.00174 0.01372 0.00739 0.01073 0.01303
0.01057 0.00142 -0.0035 0.00426 0.01363 -0.0045
0.02344 0.0031 0.01309 0.01077 0.0155 0.00587
0.00999 0.00137 0.02009 -0.0239 0.00504 -0.0046
0.02661 0.00319 0.03923 0.01695 0.01248 0.0099
0.00368 -0.0027 -0.0053 0.03912 -0.0047 -0.02242
0.01366 0.00469 0.01238 0.02079 0.0016 -0.03027
0.0175 0.00518 0.00376 0.00432 0.01546 -0.00823
0.01227 0.00956 0.01615 0.00787 0.02174 -0.00254
-0.0084 0.03065 0.00386 0.00572 0.02022 0.01856
0.03016 0.00728 0.00323 0.00025 0.00159 -0.01948
-0.0192 0.00971 0.01302 0.01236 0.00872 -0.02352
0.00129 0.01677 .00782 -0.01 -0.006 -0.00357
0.00871 0.00379 0.00987 0.00216 0.00652 -0.00659
0.05457 0.00011 0.00041 0.02911 0.01052 -0.01099
0.01891 0.01427 .00089 0.00843 0.01707 -0.01643
0.01139 0.00265 .00806 0.00069 0.0047 0.01151
0.00302 0.00274 0.00488 0.00648 0.01267 -0.01614
0.00697 0.01592 -0.0144 0.00405 0.00366 0.01327
0.01665 0.00607 0.00193 0.01998 0.00577 -0.03805
0.04371 0.03674 0.00747 0.03464 0.01729 -0.00894
0.03141 0.00664 0.01112 0.03103 0.01146 0.02954
-0.0127 0.013 0.02334 0.00288 0.01968 0.00439
0.00201 0.00487 0.03228 0.00516 -0.0074 0.00035
-0.0191 0.02199 0.02334 0.01115 0.01245 0.00255
0.00246 0.00981 0.00481 0.01695 0.00229 0.0099
0.00283 0.01274 0.01148 0.00149 0.0244 -0.00091
0.00678 0.01996 0.00861 0.0052 0.01112 -0.00143
0.00377 0.00064 0.00489 0.00673 0.01465 0.01957
0.01784 0.00778 0.00632 0.00362 0.00616 0.03816
0.01769 0.01096 0.05915 0.02037 0.00259 0.00536
0.01048 0.00841 0.0143 0.00345 0.01212 -0.02372
0.02478 0.01129 0.00714 0.01586 0.01303 0.00474
0.01703 0.00595 0.00356 0.01719 0.02519 0.01092
0.01253 0.01037 -0.0239 0.02118 0.01502 0.01228
0.02603 0.00598 0.0048 0.00996 0.00297 -0.00078
0.01787 0.01268 0.00797 0.00203 .00353 0.00373
0.0389 0.00317 -0.0046 0.0115 0.03441 -0.01158
0.01147 -0.0026 0.00175 0.00067 0.02036 -0.00536
0.00959 -0.0012 0.01375 -0.0133 0.01081 0.01029

0.02497 0.01625 0.00137 0.01266 0.01135 0.00336

0.03093 0.01162 0.01212 0.00372 0.0007 -0.01366
0.01895 .00167 0.01489 0.02314 0.00126 -0.00648
0.01143 0.00286 0.00211 0.01253 0.02353 0.01234
0.04757 0.00066 0.00306 0.00919 0.01022 -0.00096
0.01416 0.00342 0.00658 0.00383 0.0155 0.01062
0.00215 -0.0126 0.00989 0.00406 -0.0247 0.01011
0.00349 0.00281 0.01102 0.01284 0.01756 0.01197
0.03143 0.00314 0.01184 0.00769 0.00758 0.01921
0.01238 0.00698 0.01302 -0.0013 0.00516 -0.02653
0.00713 0.00771 0.00561 0.01642 0.002 0.02669
0.06849 0.00846 0.00151 0.01084 0.00272 0.01016
0.06414 0.02356 0.03561 0.02131 0.07835 -0.00289
0.01313 0.01782 0.01419 0.00383 0.01591 -0.00899
0.02824 0.01216 -0.0122 0.03156 0.00004 0.00223
-0.0155 0.00279 0.00725 0.01349 0.06277 -0.00499
0.00537 0.02319 0.03699 0.00848 0.02236 -0.03149
0.01528 0.0016 0.01081 0.00342 0.02473 0.02558
0.01519 0.00733 0.01767 0.00545 0.00247 -0.00262
0.03171 0.00472 0.02238 0.02691 0.01952 -0.00216
0.03624 0.00677 0.00282 0.01375 0.01412 0.01972
0.01348 0.01445 0.01408 0.01252 0.05791 0.00742
-0.0587 0.01463 -0.0052 0.00368 0.00361 0.02883
0.01474 0.01477 0.00151 0.01341 0.02763 0.00751
0.00464 0.00117 0.00033 0.0157 0.03552 -0.00931
0.00648 0.00683 0.00676 0.0225 0.01228 -0.01121
0.01862 0.00118 0.01173 0.00041 0.00619 -0.00524
0.02482 0.02897 0.0209 0.00584 0.01983 -0.00292
0.02952 0.00399 0.01122 0.01125 0.01313 -0.0101
0.01884 0.01058 0.03567 0.01061 0.02333 -0.00968
0.01301 0.00119 0.00441 -0.0115 0.01704 -0.01251
0.00614 0.03306 0.01235 0.0069 0.00175 0.01539
0.01536 0.00761 0.00262 0.00303 0.01774 0.00916
0.0194 0.0015 0.02265 0.01278 0.00717 0.03524
0.00351 .00683 0.01991 0.00968 0.01174 -0.00991
0.00614 -0.0071 0.01119 0.01204 -0.0229 0.00165
0.00743 0.00349 0.00084 0.00048 0.01129 -0.02698
0.02603 0.00948 0.03715 0.00342 0.01647 -0.0146
0.08439 0.0034 0.01178 0.00789 0.01712 -0.00961
0.09287 -0.0069 0.00375 0.00682 0.04486 0.0327
-.04293 0.02782 0.01076 .00286 -0.0123 0.02606
0.01618 0.01935 -0.0035 0.03081 0.03852 -0.01012
0.00206 0.02836 0.01506 0.02328 0.06373 -0.00564
0.0049 0.00394 0.01064 0.00284 0.00504 0.00506
0.00358 -0.0072 0.01892 0.01658 0.01859 -0.01487
0.00827 -0.0013 0.02463 0.01882 0.03294 -0.00215
0.02379 0.0024 0.00191 0.01395 0.01572 0.00438
0.00403 0.00876 0.00354 0.04315 0.02263 -0.00291

0.03506 0.01007 0.02972 0.02801 0.00167 0.00144

0.01687 0.00295 0.00825 .00934 0.02504 -0.00051
0.00907 0.00245 -0.0048 0.02976 0.0873 -0.01524
0.0379 0.00715 0.02379 0.00651 0.07471 0.01802
0.02076 0.00122 0.00736 0.01093 0.02829 0.01106
0.02161 0.00332 0.00663 0.00337 -0.0065 0.00993
0.00142 0.0037 0.02176 0.00143 0.01286 0.003
0.02954 0.00186 -0.0142 0.00164 0.02312 0.01474
0.00133 0.00336 0.03317 0.00133 0.02192 -0.00739
0.01489 0.00437 0.00322 0.00606 0.0038 0.00247
-.04207 0.01925 0.00094 0.00189 -0.029 -0.00824
0.01364 0.03394 0.00905 -0.012 0.01999 -0.0147
0.02734 0.01371 -0.0119 0.01553 0.06674 0.01107
0.01432 0.01576 0.01925 0.00049 0.02576 0.01234
0.02223 0.00951 0.01065 0.03023 0.0311 -0.00258
0.01369 0.00838 0.00222 0.01303 0.06448 0.00469
0.04319 0.00378 0.00904 0.00141 0.05035 0.00377
0.00543 0.01009 0.00266 0.01074 0.02944 -0.00042
0.03026 0.01312 0.00891 0.01038 0.02318 -0.00033
0.04023 0.00629 0.00143 0.01583 0.01301 -0.00913
0.01917 0.01738 0.01762 0.00947 0.01288 -0.00608
0.0172 0.00033 -0.0158 0.01477 -0.0007 -0.00035
0.01686 0.0046 0.01366 0.00366 0.00721 0.00675
0.0582 0.03194 0.0226 0.01942 0.00844 0.00535
0.01709 0.00136 0.00788 0.00737 0.00527 -0.00839
0.00662 0.00104 0.00056 0.00226 -0.0189 0.0052
-0.0209 0.00129 0.00597 0.00813 0.00005 -0.00466
0.03943 0.00092 0.00505 0.00849 0.00944 0.01619
0.00199 0.01131 0.01342 0.01019 0.01075 0.02456
0.01367 0.02729 0.00811 0.0004 0.01394 0.01231
0.01479 0.00074 0.02204 0.00075 0.00204 -0.03625
0.02225 0.00479 0.01656 0.00136 0.00995 -0.02169
0.02714 0.00411 0.00419 0.01141 0.0414 -0.00516
0.01244 0.00529 0.00531 0.00972 0.03314 0.01433
0.03841 0.03611 -0.0013 0.00233 0.02694 0.00022
0.04657 0.01004 0.03031 .03551 0.05747 -0.00043
0.00036 0.00356 0.00341 0.00794 0.00159 -0.00001
0.01608 0.01285 0.01482 0.00446 0.01253 -0.02519
0.01905 0.00439 0.07151 0.01495 0.00545 -0.00005
0.02478 0.00897 0.00423 0.00651 0.00486 -0.00949
0.00692 0.02055 0.01689 0.01657 0.01714 0.00432
0.00893 0.00364 0.00452 .00922 0.01028 0.0211
0.05697 0.00836 0.00002 0.0084 0.00272 0.04341
0.03418 -0.0074 0.00088 0.02017 0.03201 0.03165
0.03185 0.01277 -0.0039 0.00648 0.01863 0.0134
0.02079 0.00841 0.00547 0.01749 0.02131 -0.01668
0.00054 0.00918 0.0132 0.00085 0.02113 -0.00279
0.01396 0.01478 0.00559 0.00859 0.01459 0.0071

0.00248 0.00197 -0.0015 0.00719 0.00696 0.02485

0.03135 0.01168 -0.0267 0.02935 0.04187 -0.00948
0.01081 0.01512 0.01984 0.01275 0.01961 -0.01896
0.01694 0.00443 0.00351 -0.0135 0.02884 -0.03
0.00716 0.00746 0.00609 0.01452 0.01003 -0.00868
-.00292 0.02168 0.00839 0.02061 -0.0045 0.00026
0.04143 0.01511 0.0006 0.01229 0.02016 -0.03364
0.00767 0.01941 0.02113 0.03712 0.0193 -0.04693
0.00976 0.00463 0.00836 0.03602 0.01069 -0.00222
0.01843 0.00747 0.02083 0.01427 -0.0067 -0.00577
0.01743 -0.0027 0.00874 0.03607 0.00168 -0.01267
AVERAGE ABNORMAL RETURNS BEFORE AND AFTER THE DATE OF

ANNOUNCEMENT
Companies Before After

Bankex 0.000313371 -0.000458852
UTI Bank 0.000843 -0.00123
SBI Bank 0.000843 0.000193
HDFC Bank -0.00025 0.000359
ICICI 0.000227 -0.00033
Canara Bank -4.76404E-05 7.08197E-05
‘t’ TEST RESULTS
Companies T calculated T tabulated (5%)

Bankex 0.295 2.015
UTI Bank 0.479 2.015
SBI Bank -0.158 2.015
HDFC Bank -0.158 2.015
ICICI Bank 0.227 2.015
Canara Bank 0.028 2.015
HYPOTESIS
Ho; There is no significant difference in the means before and after the date of announcement
H1; There is significant difference in the means before and after the date of announcement
Results;

Since‘t’ calculated is less than‘t’ tabulated valve, the Null Hypothesis is Accepted. We can
Conclude that the event does not have significant impact on the share prices.
Therefore the markets are efficient.
CUMULATIVE ABNORMAL RETURNS
BANKEX SBI UTI HDFC ICICI CANBK

0.01213 0.01049 0.01213 0.00025 0.01941 0.00612
0.01303 0.01223 0.01303 0.01347 0.0268 0.01685
-0.0045 0.01365 -0.0045 0.00997 0.02254 0.03048
0.00587 0.01675 0.00587 0.00312 0.03331 0.01498
-0.0046 0.01538 -0.0046 0.02321 0.00941 0.02002
0.0099 0.01857 0.0099 0.01602 0.00754 0.00754
-0.02242 0.01587 0.02242 0.01072 0.04666 0.01224
-0.03027 0.02056 0.03027 0.00166 0.06745 0.01064
-0.00823 0.01538 0.00823 0.00542 0.07177 -0.0261
-0.00254 0.00582 0.00254 0.01073 -0.0639 0.04784
0.01856 0.03647 0.01856 0.00687 0.05818 0.02762
-0.01948 0.04375 0.01948 0.00364 0.05793 0.02603
-0.02352 0.05346 0.02352 0.00938 0.07029 0.03475
-0.00357 0.07023 0.00357 -0.0172 0.08029 0.04075
-0.00659 0.06644 0.00659 0.00733 0.07813 0.04727
-0.01099 0.06633 0.01099 0.00692 0.04902 0.03675
-0.01643 0.05206 0.01643 0.00781 0.04059 0.05382
0.01151 0.05471 0.01151 0.01587 0.04128 0.04912
-0.01614 0.05197 0.01614 0.02075 -0.0348 0.03645
0.01327 0.06789 0.01327 0.03515 0.03075 0.03279
-0.03805 0.07396 0.03805 0.03322 0.01077 0.02702
-0.00894 0.03722 0.00894 0.02575 0.04541 0.04431
0.02954 0.03058 0.02954 0.03687 0.01438 0.03285
0.00439 0.04358 0.00439 0.06021 -0.0115 0.01317
0.00035 0.03871 0.00035 0.02793 .01666 0.02057
0.00255 0.01672 0.00255 0.05127 0.02781 0.03302
0.0099 0.00691 0.0099 0.05608 0.04476 0.03531
-0.00091 0.00583 0.00091 -0.0446 0.04625 0.01091
-0.00143 0.01413 0.00143 0.05321 0.04105 0.02203
0.01957 0.01477 0.01957 -0.0581 0.04778 0.03668
0.03816 0.02255 0.03816 0.06442 0.04416 0.04284
0.00536 0.03351 0.00536 0.00527 0.02379 0.04543
-0.02372 0.04192 0.02372 0.00903 0.02034 0.03331
0.00474 0.05321 0.00474 0.01617 0.00448 0.04634
0.01092 0.04726 0.01092 0.01261 0.02167 0.07153

0.01228 0.03689 0.01228 0.01129 0.04285 0.08655

-0.00078 0.03091 0.00078 0.00649 0.03289 0.08358
0.00373 0.04359 0.00373 0.00148 0.03086 0.08711
-0.01158 0.04042 0.01158 -0.0032 0.01936 -0.0527
-0.00536 0.03782 0.00536 0.00145 0.01869 0.07306
0.01029 0.03662 0.01029 -0.0152 0.03199 0.06225
0.00336 0.05287 0.00336 0.01657 0.04465 -0.0736
-0.01366 0.04125 0.01366 0.02869 0.04093 -0.0729
-0.00648 0.03958 0.00648 -0.0138 0.01779 0.07164
0.01234 0.04244 0.01234 0.01169 0.03032 0.09517
-0.00096 0.04178 0.00096 0.00863 0.02113 0.08495
0.01062 0.03836 0.01062 0.01521 0.02496 0.06945
0.01011 0.02576 0.01011 -0.0251 0.02902 0.09415
0.01197 0.02363 0.01197 0.01408 0.01618 0.11171
0.01921 0.02082 0.01921 -0.0252 0.02387 0.11929
-0.02653 0.01768 0.02653 -0.0389 00257 0.12445
0.02669 0.02466 0.02669 0.04455 0.00875 0.12245
0.01016 0.03237 0.01016 0.04304 0.01959 0.11973
-0.00289 0.04083 .00289 0.00743 0.00172 0.04138
-0.00899 0.01727 0.00899 0.02162 0.00211 0.05729
0.00223 0.03509 0.00223 0.03382 0.02945 0.05725
-0.00499 0.04725 0.00499 0.02657 0.01596 0.00552
-0.03149 0.04446 0.03149 0.01042 0.00748 0.02788
0.02558 0.02127 0.02558 0.00039 0.0109 0.00315
-0.00262 0.02287 0.00262 0.01728 0.00545 0.00068
-0.00216 0.01554 0.00216 -0.0051 0.03236 0.01884
0.01972 0.01082 0.01972 0.00792 0.01861 0.03296
0.00742 0.01759 0.00742 -0.022 0.03113 0.02495
0.02883 0.03204 0.02883 -0.0272 0.03481 0.02134
0.00751 0.01741 0.00751 0.02871 0.0214 0.00629
-0.00931 0.03218 0.00931 0.02904 0.0371 0.02923
-0.01121 0.03101 0.01121 0.02228 0.0596 0.01695
-0.00524 0.02418 0.00524 0.03401 0.05919 0.01076
-0.00292 0.02536 0.00292 0.01311 0.06503 0.03059
-0.0101 0.05433 -0.0101 0.00189 0.05378 0.04372
-0.00968 0.05034 0.00968 0.03378 0.04317 0.02039
-0.01251 0.03976 0.01251 0.02937 0.03167 0.00335
0.01539 0.03857 0.01539 0.01702 0.03857 0.0016
0.00916 0.07163 0.00916 0.01964 0.03554 0.01934
0.03524 0.06402 0.03524 0.00301 0.04832 0.01217
-0.00991 0.06552 0.00991 0.0169 0.03864 0.00043
0.00165 0.05869 0.00165 0.02809 0.0266 0.02247
-0.02698 0.05159 0.02698 0.02725 0.02708 0.01118
-0.0146 0.0481 -0.0146 -0.0099 0.02366 0.02765
-0.00961 0.03862 0.00961 0.02168 0.03155 0.04477
0.0327 0.04202 0.0327 0.02543 0.02473 9E-05
0.02606 0.03512 0.02606 0.03619 0.02187 0.01221

-0.01012 0.0073 0.01012 0.03969 0.05268 0.05073

-0.00564 0.02665 0.00564 0.02463 0.07596 0.013
0.00506 0.00171 0.00506 0.01399 0.07312 0.01804
-0.01487 0.00565 0.01487 0.00493 0.05654 0.03663
-0.00215 0.01285 0.00215 -0.0197 0.03772 0.00369
0.00438 0.01415 0.00438 0.01779 0.02377 0.01203
-0.01788 0.01175 0.01788 0.02186 0.02019 0.00424
-0.00291 0.02051 0.00291 0.01832 0.06334 0.02687
0.00144 0.01365 0.00144 0.0114 0.09135 -0.0252
-0.00051 0.00358 0.00051 0.00315 0.08201 0.00016
-0.01524 0.00653 0.01524 0.00165 0.05225 0.08714
0.01802 0.00408 0.01802 0.02544 0.05876 0.16185
0.01106 0.01123 0.01106 0.01808 0.04783 0.13356
0.00993 0.01245 0.00993 0.02471 0.0512 0.12706
0.003 0.00913 0.003 0.00295 0.05263 0.13992
0.01474 0.00543 0.01474 0.01715 0.05099 0.1168
-0.00739 0.00357 0.00739 0.05032 0.05232 0.09488
0.00247 0.00693 0.00247 0.05354 0.04626 0.09868
-0.00824 -0.0113 0.00824 0.05448 0.04437 0.06968
-0.0147 0.03055 -0.0147 0.06353 0.03237 0.04969
0.01107 0.00339 0.01107 0.07543 0.0479 0.11643
0.01234 0.0171 0.01234 0.05618 0.04839 0.14219
-0.00258 0.00134 0.00258 0.04553 0.07862 0.17329
0.00469 0.00817 0.00469 0.04331 0.06559 0.10881
0.00377 0.00021 0.00377 0.03427 0.06418 0.15916
-0.00042 0.00399 0.00042 0.03161 0.05344 0.12972
-0.00033 -0.0061 0.00033 0.04052 0.04306 0.10654
-0.00913 0.00702 0.00913 0.04195 0.02723 0.11955
-0.00608 0.01331 0.00608 0.02433 0.0367 0.13243
-0.00035 0.03069 0.00035 0.04013 0.05147 0.13173
0.00675 0.03102 0.00675 0.05379 0.05513 0.12452
0.00535 0.03562 0.00535 0.03119 0.03571 0.11608
-0.00839 0.06756 0.00839 0.03907 0.04308 0.11081
0.0052 0.06892 0.0052 0.03851 0.04082 0.09191
-0.00466 0.06788 0.00466 0.04448 0.03269 0.09186
0.01619 0.06917 0.01619 0.04953 0.0242 0.08242
0.02456 0.07009 0.02456 0.06295 0.01401 0.07167
0.01231 0.05878 0.01231 0.05484 0.01441 0.05773
-0.03625 0.08607 0.03625 0.07688 0.01366 0.05977
-0.02169 0.08533 0.02169 0.09344 0.01502 0.04982
-0.00516 0.08054 0.00516 0.09763 0.00361 0.09122
0.01433 0.07643 0.01433 0.09232 0.00611 0.05808
0.00022 0.07114 0.00022 0.09362 0.00378 0.08502
-0.00043 0.03503 0.00043 0.06331 0.03929 0.02755
-0.00001 0.04507 0.00001 0.06672 0.03135 0.02596
-0.02519 0.04151 0.02519 0.08154 0.02689 0.01343
-0.00005 0.05436 0.00005 0.01003 0.01194 0.01888
-0.00949 0.05875 0.00949 -0.0058 0.00543 0.02374

0.00432 0.04978 0.00432 0.02269 -0.022 0.0066

0.0211 0.02923 0.0211 0.01817 0.03122 0.00368
0.04341 0.03287 0.04341 0.01815 0.02282 0.00096
0.03165 0.02451 0.03165 0.01727 0.04299 0.03297
0.0134 0.01711 0.0134 0.02046 0.03651 0.01434
-0.01668 0.00434 0.01668 0.01499 -0.054 0.03565
-0.00279 0.00407 0.00279 0.00179 0.05485 0.05678
0.0071 0.01325 0.0071 0.00738 0.06344 0.07137
0.02485 0.02803 0.02485 0.00888 0.05625 0.06441
-0.00948 0.02606 0.00948 0.03558 -0.0856 0.02254
-0.01896 0.01438 0.01896 0.01574 0.07285 0.04215
-0.03 -0.0295 -0.03 0.01925 0.08635 0.07099
-0.00868 0.03393 0.00868 0.02534 0.07183 0.06096
0.00026 0.04139 0.00026 0.03373 0.05122 0.06546
-0.03364 0.01971 0.03364 0.03313 0.03893 -0.0453
-0.04693 -0.0046 0.04693 -0.012 0.00181 -0.026
-0.00222 0.01481 0.00222 0.00364 0.03421 0.01531
-0.00577 0.01018 0.00577 0.01719 0.04848 0.02201
-0.01267 0.00271 0.01267 0.00845 0.01241 0.02033
0.0155 1E-05 0.0155 3E-05 -1E-05 8E-05

GRAPHS OF CUMULATIVE ABNORMAL RETURNS
BANKEX
0.2
0.15
0.1
CAAR
0.05
0
-0.05 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148
-0.1
-0.15
DAYS
UTI
0.2
0.15
0.1
CAAR
0.05
0
-0.05 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148
-0.1
-0.15
DAYS

SBI
0.2
0.15
0.1
CAAR
0.05
0
-0.05 1 9 17 25 33 41 49 57 65 73 81 89 97 105 113 121 129 137 145
-0.1
-0.15
DAYS
HDFC
0.2
0.15
0.1
CAAR
0.05
0
106
113
120
127
134
141
148
15
22
29
36
43
50
57
64
71
78
85
92
99
1
8
-0.05
-0.1
-0.15
DAYS
ICICI
0.2
0.15
0.1
CAAR
0.05
0
106
113
120
127
134
141
148
15
22
29
36
43
50
57
64
71
78
85
92
99
1
8
-0.05
-0.1
-0.15
DAYS

CANARA BANK
0.2
0.15
0.1
CAAR
0.05
0
1
9
17
25
33
41
49
57
65
73
81
89
97
105
113
121
129
137
145
-0.05
-0.1
-0.15
DAYS
EVENT STUDIED:
REPO RATES AND REVERSE REPO RATES HAVE BEEN HIKED BY 25 BASIS
POINTS ON FEBRUARY 6 t h 2006
As REPOS are short-maturit y collateralized instruments, REPO markets have strong

linkages with securities markets, derivatives markets and other short-term markets
such as INTERBANK and money markets. REPOS are useful to central banks both
as a monetary policy instrument and as a source of market information
ANALYSIS
There seems to be a general trend of decline in share prices of companies in this
sector between 127 t h and 145 t h day i.e. between March 10 t h and 30 t h March. HDFC
is the onl y company where the prices have not decline during this stage. Many
industry specific or economic factors may have been the reason for this. Bankex
seems to be more stable than any other companies in this sector.
Except for Canara Bank, which shows signs of abnormal profits, all the other
companies have adjusted itself to the new information quite quickl y and there was
no room for making abnormal profits to the investors. By looking at the graphs we
may conclude that the markets are efficient.

The share prices seem to have adjusted itself to the new information within a
period of 15 to 20 days.
To conclude a mere 25-basis-point rise in REPO rate is not going to make much of
a difference to banking companies. Banks in general operate on a fairl y large
margin or spread between the cost of raising funds and the return on them. They
have, thus, the capacit y to absorb the low rise in repo rates. It is reasonable to
expect that onl y those banks which have not raised the rates in the recent months
will now do so.

ABNORMAL REURNS USING SPSS SOFTWARE
LIFEX RANBAXY SUNPHARMA GLAXO DR REDDY CIPLA

0.01723 0.04106 0.03461 0.00881 0.04157 0.01357
-0.0013 0.01557 -0.00692 0.00829 0.01086 0.01624
0.00125 -0.01341 -0.01223 0.03123 0.00297 0.00012
0.00356 0.00522 0.01235 0.01108 0.00232 0.01382
-0.0065 -0.01785 -0.00051 0.00572 0.00874 0.01074
0.00279 0.00117 0.00038 0.00356 0.01024 0.02094
0.0074 0.01386 0.02875 0.00551 0.00505 0.02355
0.00703 0.01509 -0.00148 0.00648 0.00766 0.00247
0.00466 -0.00203 -0.00682 0.00601 0.00087 0.00327
0.01686 0.00896 0.01384 0.00017 0.00483 0.01841
0.01517 -0.02421 0.04178 0.03003 0.00038 0.01065
0.00003 0.00407 -0.00669 -.02056 0.00997 0.01217
0.01263 -0.01662 -0.04303 0.01168 0.02113 0.00361
0.00885 0.00745 0.02353 0.00596 0.00555 0.02786
0.01207 -0.00499 -0.02494 0.02278 0.01593 0.01056
0.00508 -0.00607 0.02212 0.00522 0.00609 0.00691
0.00801 -0.01271 0.01544 -0.0119 0.01227 0.02038
0.00597 -0.00761 -0.02186 0.01406 -0.0123 -0.0126
0.00758 0.00484 -0.02419 0.01804 0.00748 0.00224
0.0002 -0.00118 0.00176 0.01065 0.01357 0.00243
0.00179 -0.0066 0.00601 0.00148 0.00704 0.00076
0.00887 -0.01404 -0.00698 0.01626 0.00872 0.00337
0.00006 0.02095 -0.00196 0.00925 0.00181 0.00043
0.00159 0.00405 0.00198 0.00033 -0.0078 0.01258
0.00051 -0.00984 0.01156 0.01796 0.00358 0.00211
0.01142 0.01132 0.04212 0.01868 0.00178 0.00814
-0.0025 0.00058 -0.03146 0.01082 0.00159 0.01068
0.00105 0.00847 -0.01563 0.00311 0.00131 0.00785
0.00148 -0.01359 0.05057 0.00244 0.00166 0.00437
-0.0013 0.00666 0.00854 0.0098 0.00055 0.00629
-0.0019 -0.00749 -0.02759 0.01373 0.01875 .02199
0.00459 -0.00276 0.00007 0.00955 0.02738 0.01779
0.00105 0.00799 0.01309 0.00553 0.00411 0.0064
0.00751 0.0196 -0.02155 0.0309 0.00102 0.01823
0.00024 0.00603 0.01431 0.01603 0.00964 0.00101
0.01264 0.00756 0.02575 0.04147 0.00465 0.01172
0.00262 -0.0055 -0.02324 0.03598 0.01293 0.01869
0.00824 0.01309 0.02199 0.01095 0.01814 0.00208
0.00718 0.00399 -0.02352 0.00599 0.01487 0.01851
0.00803 -0.02995 -0.00848 0.01539 0.00494 0.00878
0.01081 -0.0361 -0.01428 0.00573 0.00939 0.00511
0.00135 0.00563 -0.0063 0.01386 0.00001 0.00499
0.00187 -0.00041 -0.00338 0.01653 0.00362 0.01615
0.00536 0.00521 -0.00093 0.00265 0.00528 0.0013
0.00244 -0.02289 0.03684 0.00788 0.00031 -0.0051

0.00536 -0.02516 0.03706 0.02206 0.0112 0.02593

0.00272 0.00408 0.01 0.00683 0.01616 0.01595
0.00625 -0.01139 -0.00013 0.01246 0.00675 0.00029
0.00623 0.01672 0.00004 0.01708 0.00215 0.01289
0.00627 0.00116 0.04188 0.02038 0.00014 0.01154
0.00348 0.00021 0.03526 0.00965 0.00215 0.0029
.00247 0.00003 -0.0301 0.00358 0.01363 0.01351
0.01341 0.00773 -0.03369 0.02936 0.01694 0.00837
0.00468 0.02556 -0.02895 -0.0076 0.01261 0.01549
0.00038 0.00604 -0.01039 0.00027 0.01834 0.0193
0.00457 -0.0116 0.00971 0.00198 0.01325 0.00247
0.00605 0.02778 -0.01215 0.01742 0.01824 0.01292
0.01714 0.04413 0.00416 0.00216 0.0242 0.00867
0.00363 -0.0044 0.00195 0.00454 0.00068 0.00375
0.00189 -0.00093 -0.0167 0.01616 0.00895 0.00819
0.00101 0.01047 0.01241 0.00845 0.00178 -0.0161
0.00089 -0.00538 -0.00487 0.00915 0.01026 0.00468
0.00341 0.00807 0.0026 0.00373 0.01267 0.00464
0.00116 -0.00183 -0.02459 0.00422 0.00013 0.00266
0.01404 0.03148 0.02923 0.01029 0.00156 0.00791
0.01265 -0.00422 0.04834 0.00161 0.02178 0.01011
0.01906 0.00213 0.00566 0.0223 0.00454 0.02481
0.01296 -0.00632 0.01796 0.0181 0.02435 0.02035
0.00591 -0.0113 -0.00024 0.00659 0.00739 0.00576
0.00386 0.00966 0.00497 0.01756 0.00813 0.01722
0.00473 -0.01765 -0.0034 0.00396 0.00081 -0.003
0.00534 -0.00517 -0.01482 0.00666 0.00881 0.00832
0.00673 0.00234 0.00042 0.00577 0.00815 0.01131
0.00467 -0.0001 -0.00068 -0.0177 0.00098 0.00865
0.00269 -0.00002 -0.01409 0.00182 0.00251 0.007
0.00414 -0.00687 0.03547 0.00826 0.00401 0.00024
0.00833 0.01032 -0.01406 -0.0069 0.01326 0.01171
0.00396 -0.01332 -0.0061 0.01088 0.00899 0.01032
0.00776 -0.0057 -0.04582 0.00525 0.01895 0.00164
0.00596 0.00208 0.01423 0.01032 0.00617 0.02401
0.01281 0.00672 -0.02995 0.02161 0.01664 0.01179
0.00107 -0.00687 -0.01754 0.00977 0.00983 0.01025
0.00366 -0.0191 -0.00348 0.00798 0.01035 .01886
0.02675 -0.0387 -0.04686 0.00497 -0.0267 -0.0359
0.02292 -0.02333 -0.01725 0.01608 0.03024 0.04066
0.00189 -0.00911 -0.00546 0.00591 0.01114 0.02639
0.00323 0.00416 -0.03777 0.01953 0.00047 0.0175
-0.0109 -0.02778 -0.02108 0.00344 0.02011 -0.0136
0.00485 -0.02477 0.05746 -0.0084 0.02199 0.00559
0.00449 -0.01167 -0.00817 0.01331 0.00094 0.024
0.00833 -0.01529 -0.00257 0.00651 0.01588 0.0197
0.0033 0.00296 0.01945 0.01189 0.01905 0.02236
0.00444 -0.00403 0.00097 0.01296 0.00699 0.01765

0.00492 0.02808 -0.02648 0.01614 0.00419 0.03015

0.00705 0.03279 0.04342 0.01832 0.00051 0.00111
0.00493 -0.00656 0.00239 0.00617 .02374 0.02155
-0.0034 -0.00426 -0.00245 0.01274 0.03591 0.01544
-0.0065 -0.02169 -0.01451 0.01848 0.00164 0.01243
0.00435 -0.00151 -0.01391 0.00152 0.00535 -0.0071
0.00368 0.02024 0.01297 0.00185 0.03058 0.00273
0.00406 -0.00935 0.00714 0.00283 0.00067 0.01145
0.00413 -0.01096 -0.00248 0.00272 0.00996 0.01838
0.00384 -0.01285 -0.00559 0.02505 0.00262 0.00378
0.00474 0.00496 0.00252 0.00762 0.007 0.01008
0.00098 -0.00478 0.00487 0.00131 -0.0013 0.00597
0.00389 0.00176 -0.00362 0.00516 0.00217 0.00538
0.00096 0.00383 -0.01236 0.02329 0.01223 0.00432
0.00216 0.00778 -0.00474 0.00541 0.00205 0.01013
0.00264 -0.01154 -0.00313 0.00132 0.00343 0.0031
0.00919 -0.01109 -0.02572 0.01248 0.02609 -0.0061
.00608 0.00725 -0.00753 0.02196 0.00684 0.01776
0.00435 -0.01879 -0.00446 0.00118 0.00141 0.00265
0.00256 -0.00123 0.00474 0.02024 0.00817 0.00965
0.00055 -0.00982 0.02126 0.0158 0.01085 0.02492
0.00322 0.01894 -0.01368 0.02812 0.01381 0.00002
0.01359 -0.01252 -0.01622 0.01283 0.00112 0.01041
0.00569 0.00219 0.02067 -0.006 0.01242 0.0045
0.00356 -0.01826 -0.00873 0.02303 -0.0022 0.00892
0.00196 0.0055 -0.00435 0.01021 0.01358 0.02395
0.00094 -0.00035 -0.00498 0.01233 0.00093 0.00036
0.00407 0.00775 -0.00301 0.00605 .00387 0.01753
0.00833 0.01921 -0.00432 0.0072 0.02649 0.01815
0.01485 0.03396 0.00948 0.00198 0.01185 0.08489
0.00231 -0.00925 -0.00497 0.01704 0.00758 0.03897
0.00291 -0.00458 -0.00094 -0.0036 0.01431 -0.0099
0.00043 0.00363 -0.00131 0.01449 0.00007 -0.0147
0.00897 0.00083 0.0107 0.00481 0.02217 0.03748
0.00908 -0.01462 -0.00843 0.02678 0.00587 0.0012
-0.003 0.00457 -0.00493 0.01934 .00304 0.0077
0.00896 0.0227 0.00249 0.01625 0.04201 0.02392
0.00253 0.00299 -0.00938 0.01259 0.01096 0.00253
0.00336 0.00979 0.01138 0.00255 0.0219 0.02292
0.00405 0.01913 -0.00525 0.02184 0.04295 0.00235
0.01033 -0.01776 -0.00398 0.00004 0.00066 0.02191
0.00145 0.01227 -0.01093 0.00888 0.02422 0.00915
0.00288 0.00908 0.01949 0.02049 0.02497 0.00359
0.00909 -0.04248 -0.006 0.00475 0.00239 0.00316
0.00812 -0.02917 -0.02663 0.01405 0.02136 0.00018
0.00495 -0.00414 -0.01102 0.00037 0.00344 0.00086
0.0135 -0.00386 0.01025 0.02026 0.00341 0.00944
0.00849 -0.01227 -0.0084 0.01387 0.00688 0.00059

-0.0044 -0.00256 -0.01276 0.00479 0.00289 0.01027

0.00154 -0.00307 -0.00137 0.00456 0.00795 0.01643
0.00091 -0.00065 0.00349 0.00074 0.00329 0.0058
0.00011 0.01956 0.00373 0.00006 0.01062 0.00112
0.00254 -0.00565 -0.00508 -0.0037 0.00628 0.00214
0.00137 -0.00334 0.00308 0.0216 0.01216 0.00115
0.00051 -0.00957 0.01278 0.01606 0.01188 0.03086
0.00123 -0.00746 0.00607 0.00856 0.02446 0.00375
0.00353 0.01154 0.00563 0.00505 0.00917 0.01956
0.00106 0.00588 0.00997 -0.007 0.00173 0.01022
0.00116 -0.01527 0.0268 0.00558 -0.0065 0.00259
0.00484 -0.0272 0.0128 0.01711 0.01943 0.0034
0.00543 -0.01006 -0.01171 0.00688 0.03256 0.00444
0.00191 0.00447 -0.00505 0.00358 0.01448 0.00822
0.00524 -0.00147 -0.00596 0.00066 0.00773 0.05415
0.00504 0.00357 0.06241 0.01832 0.01806 0.00848
0.00008 0.01605 -0.0225 0.01197 0.00158 0.04308
0.00705 -0.00472 -0.01092 0.01785 0.00958 0.00016
0.00185 -0.00273 0.00755 0.0005 0.00461 0.00476
0.00531 0.03603 -0.02323 -0.0683 0.01625 -0.0029
0.00883 0.0274 -0.00235 0.00139 0.02443 0.00714
0.00481 -0.03393 -0.006 0.00217 -0.0101 0.00963
0.00442 -0.00619 0.01773 0.00075 0.00697 0.00138
0.00406 0.0131 -0.00645 0.00158 0.01732 0.00428
0.00094 0.00028 -0.01391 0.00624 0.00945 0.0104
0.00416 0.01321 0.01603 0.00278 0.00305 0.00211
0.00636 0.00361 0.00744 0.00016 0.01911 0.02033
-0.0067 -0.01722 -0.00531 0.01038 0.00243 -0.0175
0.00249 -0.00503 0.00499 0.02192 0.01549 0.00737
0.00316 0.01163 0.00682 -0.0017 0.00357 0.00217
0.00177 -0.00432 -0.00376 0.01055 0.00027 0.00696
0.00015 0.01273 -0.00463 0.00528 0.01066 -0.0138
0.0012 -0.00649 0.00193 0.00226 0.00199 0.00913
0.00637 0.01536 0.0272 -0.0062 0.00943 0.0155
0.01126 0.03473 0.02092 0.0075 0.01498 0.0041
0.00128 0.02036 0.01604 0.00206 0.01915 0.00026
0.00192 0.02745 -0.028 0.00809 -0.0132 0.00376
0.00109 -0.00036 -0.01931 0.0011 0.0147 0.01174
0.0027 -0.00505 -0.02151 0.00575 0.00285 0.00639
0.0156 0.01544 0.0053 0.01572 0.01028 0.00924

Average Abnormal Returns before and after the date of

announcement
Companies Before After

Lifex -0.000104176 0.000106444
Ranbaxy -0.00115 0.001161
Sunpharma 0.000124 -0.00013
Glaxo -0.00032 0.000326
Dr Reddy -0.00034 0.000341
Cipla -0.00049 0.000493
‘t’ test results
Companies T calculated T tabulated

Lifex -0.202 2.015
Ranbaxy -1.032 2.015
Sunpharma 0.088 2.015
Glaxo -0.331 2.015
Dr Reddy -0.333 2.015
Cipla -0.417 2.015
HYPOTESIS
Results;
Since‘t’ calculated is significantly less than‘t’ tabulated valve, the Null Hypothesis is
Accepted. .This shows that the difference is very minimal. We can conclude that the event
does not have significant impact on the share prices and market has not reacted so strongly.
Therefore the markets are efficient

CUMULATIVE AVERAGE ABNORMAL RETURNS
LIFEX RANBAXY SUNPHARMA GLAXO DR REDDY CIPLA

0.01723 0.04106 0.03461 0.00881 0.04157 0.01357
0.01593 0.05663 0.02769 0.0171 0.03071 0.02981
0.01468 0.04322 0.01546 0.04833 0.03368 0.02969
0.01112 0.04844 0.02781 0.03725 0.036 0.01587
0.00462 0.03059 0.0273 0.03153 0.02726 0.00513
0.00741 0.03176 0.02768 0.02797 0.01702 0.02607
0.01481 0.04562 0.05643 0.03348 0.01197 0.04962
0.02184 0.06071 0.05495 0.03996 0.01963 0.04715
0.0265 0.05868 0.04813 0.04597 0.0205 0.05042
0.04336 0.06764 0.06197 0.04614 0.02533 0.06883
0.05853 0.04343 0.10375 0.07617 0.02495 0.05818
0.05856 0.0475 0.09706 0.05561 0.01498 0.07035
0.04593 0.03088 0.05403 0.06729 -0.00615 0.06674
0.05478 0.03833 0.07756 0.07325 -0.0006 0.0946
0.04271 0.03334 0.05262 0.05047 0.01533 0.08404
0.03763 0.02727 0.07474 0.04525 0.02142 0.07713
0.02962 0.01456 0.09018 0.03335 0.00915 0.05675
0.02365 0.00695 0.06832 0.01929 -0.00315 0.04415
0.01607 0.01179 0.04413 0.00125 0.00433 0.04191
0.01627 0.01061 0.04589 0.0119 0.0179 0.03948
0.01806 0.00401 0.0519 0.01042 0.02494 0.03872
0.00919 -0.01003 0.04492 -0.00584 0.01622 0.04209
0.00925 0.01092 0.04296 -0.01509 0.01441 0.04252
0.01084 0.01497 0.04494 -0.01542 0.00661 0.02994
0.01033 0.00513 0.0565 0.00254 0.01019 0.03205
0.02175 0.01645 0.09862 0.02122 0.01197 0.02391
0.01925 0.01703 0.06716 0.0104 0.01356 0.01323
0.0182 0.0255 0.05153 0.01351 0.01225 0.00538
0.01968 0.01191 0.1021 0.01595 0.01391 0.00975
0.01838 0.01857 0.11064 0.02575 0.01446 0.00346
0.01648 0.01108 0.08305 0.01202 -0.00429 0.01853
0.02107 0.00832 0.08312 0.02157 0.02309 0.00074
0.02002 0.01631 0.09621 0.01604 0.01898 0.00566

0.02753 0.03591 0.07466 0.04694 0.01796 0.02389
0.02777 0.04194 0.08897 0.06297 0.00832 0.02288
0.04041 0.0495 0.11472 0.10444 0.01297 0.01116
0.04303 0.044 0.09148 0.14042 0.0259 0.00753
0.05127 0.05709 0.11347 0.12947 0.04404 0.00545

0.04409 0.06108 0.08995 0.13546 0.02917 0.02396

0.03606 0.03113 0.08147 0.12007 0.03411 0.03274
0.02525 -0.00497 0.06719 0.1258 0.02472 0.03785
0.0266 0.00066 0.06089 0.13966 0.02471 -0.03286
0.02847 0.00025 0.05751 0.15619 0.02109 -0.01671
0.03383 0.00546 0.05658 0.15354 0.02637 -0.01541
0.03627 -0.01743 0.09342 0.14566 0.02606 0.02051
0.03091 -0.04259 0.13048 0.1236 0.03726 -0.04644
0.03363 -0.03851 0.14048 0.13043 0.05342 -0.06239
0.02738 -0.0499 0.14035 0.11797 0.04667 -0.0621
0.03361 -0.03318 0.14039 0.10089 0.04452 -0.07499
0.03988 -0.03202 0.18227 0.12127 0.04438 -0.06345
0.04336 -0.03181 0.21753 0.11162 0.04653 -0.06055
0.04089 -0.03178 0.18743 0.1152 0.06016 -0.04704
0.02748 -0.02405 0.15374 0.08584 0.04322 -0.03867
0.0228 0.00151 0.12479 0.07824 0.03061 -0.05416
0.02242 0.00755 0.1144 0.07797 0.01227 -0.03486
0.01785 -0.00405 0.12411 0.07599 0.02552 -0.03239
0.0239 0.02373 0.11196 0.05857 0.04376 -0.01947
0.04104 0.06786 0.11612 0.05641 0.06796 -0.0108

GRAPHS SHOWING CUMULATIVE ABNORMAL RETURNS

RANBAXY
0.15
0.1
0.05
0
caar
-0.05 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99106113120127134141148155162169176
-0.1
-0.15
-0.2
days
LIFEX
0.15
0.1
0.05
caar
0
1 8 15 22 29 36 43 50 57 64 71 78 85 92 99106113120127134141148155162169176
-0.05
-0.1
days
SUNPHARMA
0.25
0.2
0.15
CAAR
0.1
0.05
0
-0.05 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106113120127134141148155162169176
-0.1
days

GLAXO
0.15
0.1
0.05
CAAR
0 1
8
15
22
29
36
43
50
57
64
71
78
85
92
99
106
113
120
127
134
141
148
155
162
169
176
-0.05
-0.1
-0.15
-0.2
DAYS
DR REDDY
0.15
0.1
0.05
CAAR
0
-0.05 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99106113120127134141148155162169176
-0.1
-0.15
DAYS
CIPLA
0.15
0.1
0.05
CAAR
0
15
22
29
36
43
50
57
64
71
78
85
92
99
106
113
120
127
134
141
148
155
162
169
176
1
8
-0.05
-0.1
-0.15
-0.2
DAYS

EVENT STUDIED
UNION FINANCE MINISTER DEC IDES TO LEVY EXC ISE DUTY ON MRP
OF DRUGS ON- JANVARY 19 T H 2005
Pharma stocks have been on the decline since the beginning of 2005. Major
scrips have lost 21 per cent to 11 per cent against a 7.3 per cent decline in
the Sensex since January 3 until event date.Pharma sector quarterl y results
have shown a mixed trend.Some companies have shown good results but
some have not.
Market anal ysts attribute the reasons for the fall in pharma share prices to a
mix of short-term impact caused by the change to MRP-based excise
assessment s ystem for drugs and long-term impact following the change-over
to the product patent regime.
ANALYSIS
By observing the graph one can say that the news was anticipated by this
sector. The drop in prices just before the date of announcement proves this
point. The CAAR valves have come down drasticall y in the ten days
preceding the Date of Announcement .The drop in prices may also be as a
result of information leakage details of which is not known
After the announcement is made we can see that the share prices have
graduall y adjusted itself and there was no room for abnormal profits. The
share prices seem to have adjusted within the span of 10 to 15 days.
There is no significant change in the CAAR valves after the event so we may
conclude that market is efficient.

GOEMETRIC WIPRO SATYAM HCL INFOSYS

0.0166 -0.00258 0.01372 0.04984 0.0105
-0.05262 -0.02385 -0.05041 0.02402 -0.02657
0.02694 -0.0003 -0.01935 -0.0144 -0.00624
-0.01938 0.02754 -0.02688 0.12202 0.02432
0.03692 -0.00716 -0.01696 -0.00592 0.01033
0.00046 0.03665 -0.01639 -0.03154 -0.00295
0.00581 -0.02765 0.03118 -0.0453 -0.01947
0.00415 -0.06272 -0.00863 -0.03775 -0.02133
0.01098 -0.02023 0.0074 -0.02213 -0.00225
-0.03887 -0.02286 0.07403 0.01487 0.01023
-0.03206 -0.0186 -0.00138 0.02853 0.00772
-0.07676 -0.01348 -0.0388 -0.02075 0.00281
-0.07458 0.01383 -0.02205 -0.02513 -0.00494
-0.06924 0.02791 0.00553 0.04919 0.02742
-0.06892 -0.0088 -0.02881 0.02447 0.00411
-0.07978 -0.01087 0.02653 -0.00299 -0.01401
-0.07265 0.01901 0.01271 0.00381 -0.00857
-0.06852 0.02848 0.03924 0.04758 0.01734
0.04338 0.0069 0.00328 0.02506 0.01086
-0.03328 0.03084 0.02019 -0.01948 0.00349
-0.06912 0.0329 0.00355 0.05977 0.00456
-0.07205 -0.00382 -0.03747 -0.00449 -0.00031
-0.03142 0.00124 0.00807 0.00059 0.01173
0.0849 0.0028 -0.02517 -0.00783 -0.00851
0.07417 -0.00296 -0.00768 -0.01167 -0.02526
0.08163 -0.04472 -0.05814 -0.03665 -0.04301
-0.04717 0.02238 0.0136 -0.68322 0.00588
-0.0051 -0.01894 -0.0402 -0.05498 -0.02897
0.07001 0.07588 0.01825 0.00331 0.00541
-0.04863 -0.01095 -0.02186 -0.00102 -0.01026
-0.00248 0.03316 -0.00335 0.01456 -0.01056
-0.05184 -0.02605 0.01594 -0.00543 -0.00071
-0.02205 -0.00045 -0.00187 -0.00597 -0.00496
0.08353 0.00585 0.02247 0.00432 0.00093
-0.00069 -0.03648 -0.0117 0.0806 -0.01347
-0.0385 -0.00499 0.03126 0.02155 -0.00049
-0.06893 -0.02813 -0.0134 0.00196 -0.00475
0.06534 -0.0138 -0.01977 -0.09472 -0.00152
0.00495 0.01232 -0.00124 0.03741 0.01323
0.00813 0.00218 0.00577 -0.0077 -0.01917
-0.00885 0.01138 0.0568 0.02474 -0.00967
0.02665 0.05109 0.01163 0.08092 -0.00486
0.0253 -0.05815 0.0047 -0.02189 -0.00697
0.05748 0.00248 0.01956 0.03865 0.0382
-0.00331 0.04069 0.0337 0.0565 0.01212
-0.05809 0.05694 -0.0007 0.0741 0.01742
0.03552 -0.04276 -0.01361 -0.10133 -0.01155

-0.02356 -0.03346 -0.04977 -0.06311 -0.01887

-0.05251 -0.00636 0.0052 0.03481 -0.00138
-0.06372 -0.01109 -0.01343 -0.01532 -0.00861
0.04136 0.00748 0.00941 0.01355 0.0216
0.00613 -0.02592 -0.01661 -0.02658 -0.01356
0.01495 0.00129 0.0169 0.00904 0.00089
-0.01134 0.00707 0.01373 -0.0197 0.01543
-0.01365 -0.0094 -0.02286 -0.02821 -0.00835
0.02899 -0.01299 -0.0333 -0.00871 -0.03128
0.04003 0.01817 0.00001 0.00578 -0.00147
0.01679 0.01727 -0.03093 0.0333 -0.00034
-0.02712 -0.02215 -0.03312 -0.03019 -0.02562
-0.0158 0.0016 -0.04171 -0.041 -0.02791
-0.00879 0.02305 -0.01191 0.02016 -0.00043
-0.01838 0.027 0.01412 0.01182 0.01969
-0.01798 -0.03571 -0.00544 0.02413 -0.00041
-0.067 -0.0258 0.00222 0.01131 -0.00943
-0.02911 0.02618 0.03227 0.03546 0.02171
0.03669 0.00255 0.0143 -0.0092 -0.00117
0.03152 -0.01314 0.00181 -0.0012 -0.0007
0.08751 -0.00447 -0.04851 -0.00167 -0.03482
0.01648 -0.01637 0.00988 -0.00413 0.00535
0.0104 0.03056 0.01208 0.02916 0.02442
0.04066 0.01198 0.03628 0.04753 0.03332
0.00208 -0.04249 -0.03433 0.06763 0.0132
-0.03181 -0.01726 0.02604 -0.02665 0.02276
0.05048 -0.06621 -0.12037 -0.09653 -0.10352
0.03387 -0.04158 -0.06759 -0.06317 -0.05267
-0.03166 0.02101 -0.00149 -0.00053 0.02266
0.02085 0.03355 0.06571 0.11228 0.05401
0.02876 -0.0479 -0.01181 0.04267 0.0182
0.01612 -0.06203 -0.00374 -0.03062 -0.00365
0.0139 -0.02079 0.10189 0.12677 0.0677
-0.01369 -0.01396 0.00273 0.01407 0.00448
-0.05635 0.01422 0.01768 0.01999 -0.00261
0.03358 0.03072 0.01166 0.09389 0.00597
0.03944 0.00708 -0.00096 -0.03096 -0.03855
0.01336 -0.04395 -0.02966 -0.0471 -0.0152
0.02435 0.01556 0.00914 -0.01195 -0.01021
-0.01564 -0.01105 -0.00765 -0.00607 -0.02575
0.01919 -0.01279 0.00576 0.03062 -0.01812
0.00133 0.00476 0.03047 0.04237 0
0.00306 -0.00096 -0.00737 -0.06583 -0.02859
0.02643 -0.01696 -0.03083 0.01988 -0.0186
0.07131 -0.02718 -0.01986 -0.03241 -0.04374
-0.03495 0.03697 0.05028 -0.00652 0.00514
0.08413 -0.03133 0.06652 -0.03167 0.02794
0.00351 0.0012 -0.01348 0.02369 -0.02508

-0.07193 -0.02517 -0.01761 0.08163 -0.01495

-0.07434 -0.06794 -0.00777 0.03512 0.02725
0.03693 0.02435 0.03557 -0.03425 0.00826
-0.02985 -0.01634 0.03518 -0.05001 0.01158
-0.06651 -0.09299 -0.06007 -0.08993 -0.10517
-0.06606 0.02723 -0.06749 -0.07437 -0.03445
-0.07777 0.10392 0.07057 -0.02103 0.03367
-0.03435 0.04945 -0.04277 0.04853 -0.04022
0.07896 0.06683 0.06973 0.07623 0.08591
0.00125 -0.05274 0.04607 0.06923 0.0076
-0.0553 0.06249 0.00154 0.08645 0.00273
-0.01047 -0.01358 -0.04356 0.01815 -0.03285
0.02052 0.09275 0.03405 -0.0053 0.04251
-0.00174 -0.02433 -0.06609 0.01111 -0.0116
-0.04973 0.00069 -0.04155 0.01071 -0.02222
0.00241 -0.05498 -0.07375 -0.07516 -0.04542
0.01713 0.0778 0.09346 0.09874 0.09374
0.06952 0.03392 0.00125 0.04841 0.04444
-0.04768 0.08807 -0.0306 0.04954 -0.007
-0.06474 0.02432 0.04718 0.0035 -0.00549
-0.07476 0.0258 0.00326 0.04539 0.03159
0.00916 0.00522 0.05154 0.02184 -0.01954
-0.00594 -0.0857 -0.00975 -0.07032 -0.02403
0.07296 0.00579 -0.02361 0.01671 0.00989
0.00919 -0.00473 0.00283 -0.00448 0.01859
0.00038 -0.00832 -0.01645 -0.02057 0.00046
-0.03998 0.013 0.01362 -0.01573 0.00184
-0.06593 0.01683 -0.00018 0.03705 -0.02716
0.05969 -0.04236 -0.03686 -0.01127 -0.01683
0.0507 -0.00815 -0.01185 0.03801 0.01945
0.08729 0.03547 0.01735 -0.0041 0.01029
0.08702 0.03047 0.02877 0.04627 0.0108
0.08454 -0.00236 -0.00644 0.00573 0.04581
0.08587 0.0037 -0.00391 -0.06028 -0.01584
0.08759 0.01936 0.05083 -0.00829 0.01856
0.08348 -0.00626 -0.0222 0.00615 -0.00123
-0.05408 -0.00433 -0.01972 -0.02513 -0.01398
-0.06506 -0.02211 -0.0243 -0.00194 -0.03977
0.08147 -0.01534 -0.03757 -0.00328 -0.02093
0.00931 0.0401 0.01893 0.03002 0.0329
-0.03263 -0.02504 0.01483 -0.01774 0.00198
0.02113 0.02036 0.0225 0.01216 0.07091
-0.00124 0.03369 0.02537 0.03007 0.0068
0.00514 0.00689 -0.00291 0.05554 0.02542
0.03605 0.02242 0.0077 0.00388 -0.00225
-0.00302 -0.00255 -0.02027 -0.04207 -0.03917
0.02587 0.03553 0.002 -0.00809 0.01746
RESIDUAL VALUES USING SPSS SOFTWARE

AVERAGE OF ABNORMAL RETURNS BEFORE AND AFTER THE DATE OF

ANNOUNCEMENT
Before After
Geometric -0.003807889 0.004895714
Wipro -0.001493111 0.001920286
Satyam -0.00131 0.00168
HCL -0.00359 0.004619
Infosys -0.00125 0.001601
T test results
T calculated T tabulated (5%)

Geometric -1.193 2.015
Wipro -0.641 2.015
Satyam -0.539 2.015
HCL -0.741 2.015
Infosys -0.631 2.015
HYPOTESIS
Results;
Since‘t’ calculated is less than‘t’ tabulated valve, the Null Hypothesis is Accepted. The
means values before the date of announcements in negatives while after the date it has been
positive. The impact is very less and that the company prices have adjusted itself very
quickly. We can conclude that the event does not have significant impact on the share
prices and there is no significant difference in means before and after the event and the
markets are efficient.

CUMULATIVE ABNORMAL RETURNS
GEOMETRIC WIPRO SATYAM HCL INFOSYS

0.0166 -0.00258 0.01372 0.04984 0.0105
-0.03602 -0.02643 -0.03669 0.07386 -0.01607
-0.00908 -0.02673 -0.05604 0.05946 -0.02231
-0.02846 0.00081 -0.08292 0.18148 0.00201
0.00846 -0.00635 -0.09988 0.17556 0.01234
0.00892 0.0303 -0.11627 0.14402 0.00939
0.01473 0.00265 -0.08509 0.09872 -0.01008
0.01888 -0.06007 -0.09372 0.06097 -0.03141
0.02986 -0.0803 -0.08632 0.03884 -0.03366
-0.00901 -0.10316 -0.01229 0.05371 -0.02343
-0.04107 -0.12176 -0.01367 0.08224 -0.01571
-0.11783 -0.13524 -0.05247 0.06149 -0.0129
-0.19241 -0.12141 -0.07452 0.03636 -0.01784
-0.26165 -0.0935 -0.06899 0.08555 0.00958
-0.33057 -0.1023 -0.0978 0.11002 0.01369
-0.41035 -0.11317 -0.07127 0.10703 -0.00032
-0.483 -0.09416 -0.05856 0.11084 -0.00889
-0.55152 -0.06568 -0.01932 0.15842 0.00845
-0.50814 -0.05878 -0.01604 0.18348 0.01931
-0.54142 -0.02794 0.00415 0.164 0.0228
-0.61054 0.00496 0.0077 0.22377 0.02736
-0.68259 0.00114 -0.02977 0.21928 0.02705
-0.71401 0.00238 -0.0217 0.21987 0.03878
-0.62911 0.00518 -0.04687 0.21204 0.03027
-0.55494 0.00222 -0.05455 0.20037 0.00501
-0.47331 -0.0425 -0.11269 0.16372 -0.038
-0.52048 -0.02012 -0.09909 -0.5195 -0.03212
-0.52558 -0.03906 -0.13929 -0.57448 -0.06109
-0.45557 0.03682 -0.12104 -0.57117 -0.05568
-0.5042 0.02587 -0.1429 -0.57219 -0.06594
-0.50668 0.05903 -0.14625 -0.55763 -0.0765
-0.55852 0.03298 -0.13031 -0.56306 -0.07721
-0.58057 0.03253 -0.13218 -0.56903 -0.08217
-0.49704 0.03838 -0.10971 -0.56471 -0.08124
-0.49773 0.0019 -0.12141 -0.48411 -0.09471
-0.53623 -0.00309 -0.09015 -0.46256 -0.0952
-0.60516 -0.03122 -0.10355 -0.4606 -0.09995
-0.53982 -0.04502 -0.12332 -0.55532 -0.10147
-0.53487 -0.0327 -0.12456 -0.51791 -0.08824
-0.52674 -0.03052 -0.11879 -0.52561 -0.10741
-0.51338 -0.07447 -0.14845 -0.57271 -0.12261
-0.48903 -0.05891 -0.13931 -0.58466 -0.13282
-0.50467 -0.06996 -0.14696 -0.59073 -0.15857
-0.48548 -0.08275 -0.1412 -0.56011 -0.17669

-0.48415 -0.07799 -0.11073 -0.51774 -0.17669

-0.48109 -0.07895 -0.1181 -0.58357 -0.20528
-0.45466 -0.09591 -0.14893 -0.56369 -0.22388
-0.4671 -0.07912 -0.12863 -0.56956 -0.21717
-0.44268 -0.07432 -0.13537 -0.57465 -0.21707
-0.4478 -0.08598 -0.14639 -0.59707 -0.22538
-0.43663 -0.12582 -0.1925 -0.64647 -0.26355
-0.42622 -0.05444 -0.0998 -0.53905 -0.20171
-0.43916 -0.03993 -0.05589 -0.53082 -0.18263
-0.39661 -0.05311 -0.06478 -0.55076 -0.21651
-0.40546 -0.04173 -0.00798 -0.52602 -0.22618
-0.37881 0.00936 0.00365 -0.4451 -0.23104
-0.35351 -0.04879 0.00835 -0.46699 -0.23801
-0.29603 -0.04631 0.02791 -0.42834 -0.19981
-0.20966 -0.04597 0.0403 -0.41547 -0.13472
-0.22421 -0.07314 0.0046 -0.41107 -0.15246
-0.28885 -0.08684 0.01069 -0.42064 -0.12415
-0.29216 -0.04615 0.04439 -0.36414 -0.11203
-0.35025 0.01079 0.04369 -0.29004 -0.09461
-0.31473 -0.03197 0.03008 -0.39137 -0.10616
-0.33829 -0.06543 -0.01969 -0.45448 -0.12503
-0.3908 -0.07179 -0.01449 -0.41967 -0.12641
-0.45452 -0.08288 -0.02792 -0.43499 -0.13502
-0.41316 -0.0754 -0.01851 -0.42144 -0.11342
-0.40703 -0.10132 -0.03512 -0.44802 -0.12698
-0.39208 -0.10003 -0.01822 -0.43898 -0.12609
-0.40342 -0.09296 -0.00449 -0.45868 -0.11066
-0.41707 -0.10236 -0.02735 -0.48689 -0.11901
-0.38808 -0.11535 -0.06065 -0.4956 -0.15029
-0.34805 -0.09718 -0.06064 -0.48982 -0.15176
-0.33126 -0.07991 -0.09157 -0.45652 -0.1521
-0.35838 -0.10206 -0.12469 -0.48671 -0.17772
-0.37418 -0.10046 -0.1664 -0.52771 -0.20563
-0.38297 -0.07741 -0.17831 -0.50755 -0.20606
-0.40135 -0.05041 -0.16419 -0.49573 -0.18637
-0.41933 -0.08612 -0.16963 -0.4716 -0.18678
-0.48633 -0.11192 -0.16741 -0.46029 -0.19621
-0.51544 -0.08574 -0.13514 -0.42483 -0.1745
-0.47875 -0.08319 -0.12084 -0.43403 -0.17567
-0.44723 -0.09633 -0.11903 -0.43523 -0.17637
-0.35972 -0.1008 -0.16754 -0.4369 -0.21119
-0.34324 -0.11717 -0.15766 -0.44103 -0.20584
-0.35364 -0.08661 -0.14558 -0.41187 -0.18142
-0.31298 -0.07463 -0.1093 -0.36434 -0.1481
-0.3109 -0.11712 -0.14363 -0.29671 -0.1349
-0.34271 -0.13438 -0.11759 -0.32336 -0.11214
-0.29223 -0.20059 -0.23796 -0.41989 -0.21566
-0.25836 -0.24217 -0.30555 -0.48306 -0.26833

-0.29002 -0.22116 -0.30704 -0.48359 -0.24567

-0.26917 -0.18761 -0.24133 -0.37131 -0.19166
-0.28296 -0.15209 -0.28494 -0.45424 -0.20364
-0.2542 -0.19999 -0.29675 -0.41157 -0.18544
-0.23808 -0.26202 -0.30049 -0.44219 -0.18909
-0.22418 -0.28281 -0.1986 -0.31542 -0.12139
-0.23787 -0.29677 -0.19587 -0.30135 -0.11691
-0.29422 -0.28255 -0.17819 -0.28136 -0.11952
-0.26064 -0.25183 -0.16653 -0.18747 -0.11355
-0.2212 -0.24475 -0.16749 -0.21843 -0.1521
-0.18624 -0.23105 -0.09934 -0.21384 -0.14266
-0.19198 -0.31334 -0.16483 -0.31289 -0.17335
-0.20113 -0.33085 -0.16776 -0.31035 -0.17673
-0.221 -0.33505 -0.13136 -0.29273 -0.15178
-0.21611 -0.33175 -0.06941 -0.28808 -0.12394
-0.23706 -0.34601 -0.05754 -0.29932 -0.07203
-0.25446 -0.37075 -0.09033 -0.29594 -0.10464
-0.18315 -0.39793 -0.11019 -0.32835 -0.14838
-0.2181 -0.36096 -0.05991 -0.33487 -0.14324
-0.13397 -0.39229 0.00661 -0.36654 -0.1153
-0.13046 -0.39109 -0.00687 -0.34285 -0.14038
-0.20239 -0.41626 -0.02448 -0.26122 -0.15533
-0.27673 -0.4842 -0.03225 -0.2261 -0.12808
-0.2398 -0.45985 0.00332 -0.26035 -0.11982
-0.26965 -0.47619 0.0385 -0.31036 -0.10824
-0.33616 -0.56918 -0.02157 -0.40029 -0.21341
-0.40222 -0.54195 -0.08906 -0.47466 -0.24786
-0.47999 -0.43803 -0.01849 -0.49569 -0.21419
-0.51434 -0.38858 -0.06126 -0.44716 -0.25441
-0.43538 -0.32175 0.00847 -0.37093 -0.1685
-0.43413 -0.37449 0.05454 -0.3017 -0.1609
-0.48943 -0.312 0.05608 -0.21525 -0.15817
-0.4999 -0.32558 0.01252 -0.1971 -0.19102
-0.47938 -0.23283 0.04657 -0.2024 -0.14851
-0.48112 -0.25716 -0.01952 -0.19129 -0.16011
-0.53085 -0.25647 -0.06107 -0.18058 -0.18233
-0.52844 -0.31145 -0.13482 -0.25574 -0.22775
-0.51131 -0.23365 -0.04136 -0.157 -0.13401
-0.44179 -0.19973 -0.04011 -0.10859 -0.08957
-0.48947 -0.11166 -0.07071 -0.05905 -0.09657
-0.55421 -0.08734 -0.02353 -0.05555 -0.10206
-0.62897 -0.06154 -0.02027 -0.01016 -0.07047
-0.61981 -0.05632 0.03127 0.01168 -0.09001
-0.62575 -0.14202 0.02152 -0.05864 -0.11404
-0.55279 -0.13623 -0.00209 -0.04193 -0.10415
-0.5436 -0.14096 0.00074 -0.04641 -0.08556
-0.54322 -0.14928 -0.01571 -0.06698 -0.0851
-0.5832 -0.13628 -0.00209 -0.08271 -0.08326

-0.64913 -0.11945 -0.00227 -0.04566 -0.11042

-0.58944 -0.16181 -0.03913 -0.05693 -0.12725
-0.53874 -0.16996 -0.05098 -0.01892 -0.1078
-0.45145 -0.13449 -0.03363 -0.02302 -0.09751
-0.36443 -0.10402 -0.00486 0.02325 -0.08671
-0.27989 -0.10638 -0.0113 0.02898 -0.0409
-0.19402 -0.10268 -0.01521 -0.0313 -0.05674
-0.10643 -0.08332 0.03562 -0.03959 -0.03818
-0.02295 -0.08958 0.01342 -0.03344 -0.03941
-0.07703 -0.09391 -0.0063 -0.05857 -0.05339
-0.14209 -0.11602 -0.0306 -0.06051 -0.09316
-0.06062 -0.13136 -0.06817 -0.06379 -0.11409
-0.05131 -0.09126 -0.04924 -0.03377 -0.08119
-0.08394 -0.1163 -0.03441 -0.05151 -0.07921
-0.06281 -0.09594 -0.01191 -0.03935 -0.0083
-0.06405 -0.06225 0.01346 -0.00928 -0.0015
-0.05891 -0.05536 0.01055 0.04626 0.02392
-0.02286 -0.03294 0.01825 0.05014 0.02167
-0.02588 -0.03549 -0.00202 0.00807 -0.0175
-1E-05 4E-05 -2E-05 -2E-05 -4E-05

GRAPHS OF ABNORMAL RETURNS
geometric
0.2
106
113
120
127
134
141
148
155
15
22
29
36
43
50
57
64
71
78
85
92
99
1
8
-0.2
CAAR
-0.4
-0.6
-0.8
days
WIPRO
0.1
0
-0.1 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148 155
-0.2
CAAR
-0.3
-0.4
-0.5
-0.6
-0.7
DAYS

HCL
0.4
0.2
0
CAAR
-0.2 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148 155
-0.4
-0.6
-0.8
DAYS
SATYAM
0.1
0
1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148 155
CAAR
-0.1
-0.2
-0.3
-0.4
DAYS
INFOSYS
0.1
0.05
0
-0.05 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148 155
CAAR
-0.1
-0.15
-0.2
-0.25
-0.3
DAYS

EVENT STUDIED
Exemption of 100% of profits Derived from export out of India in

connection with development of Computer Software on 28 t h February 2001
ANALYSIS
After the date of announcement there seem to be a drastic fall in the share
prices. There is a down ward trend. The trend continues for some 15 to 20
days after which we can see the market picking up. There is no evidence of
investor making abnormal profits in an y of the company .There is not much
of an impact on HCL. One of the reasons may be it’s majorly into hardware
sector. On the other hand impact is more in Wipro. Stake holders may have
lost out on wealth in this particular company.
The share prices of Infos ys and Sat yam have taken a beating immediatel y
after the announcement but have adjusted in few days. The market seems to
have adjusted itself within a period of 20 to 25 days .the impact is also very
less in geometric company. One of the reasons is it’s a small company when
compared to other companies which are taken as market leaders.
Therefore it can be concluded that market is efficient.

SUMMARY
This study was conducted to find whether there were any abnormal returns after the
announcement of policy change by the government, and how long does the market take to
adjust to the new information. Event study methodology is used in this process. There has
been research in this field regarding reaction of stock market to bonus issue or stock split.
Very few studies have conducted event study on stock market reaction to changes in
government policy. This study aims to do that
The study was conducted for three different sectors namely Banking, Pharmaceuticals and
Information Technology. The event period was 90 days before and 60 days after the date of
announcement. The Events Studied were, changes in Repo and Reverse Repo rates in case of
Banking sector , excise on MRP in case of Pharmaceutical Companies and Software Products
brought under the tax net in case of Information Technology Sector. The data was collected
from various issues of Economic Times and websites of National Stock Exchange. Residual
returns were found using SPSS software. These valves were averaged and t test was done to
find whether the there is significant difference in means before and after the date of
announcement.
The results were negative, there was no significant difference. Then the residuals were
cumulated and were shown in a graph. From this we could make out that there were no
abnormal returns. Different companies have reacted differently to the news. For some
companies the share prices have fallen before the date of announcement like in
pharmaceutical sector and for some companies it has fallen right after the information was
release in the market. There is evidence to this in IT sector. The reasons for stock prices to
come down before the date of announcement could be information leakage or actual
anticipation.
Thus the conclusions drawn were the announcement of policy change by the government
have a mixed impact on different sector. But in general the markets have adjusted itself to the
new information quite quickly and there was no possibility of investors making abnormal
profits

FINDINGS AND CONCLUSIONS
The event that affects a firm's market value may be within the firm's control, such as the
event of the announcement of a stock split. Or the event may be outside the firm's control,
such as the event of a legislative act being passed, or a regulatory ruling being announced,
that will affect the firm's future operations in some way.
Single piece of information from the government may affect the share prices of specific
sector. Very little study has been made on this particular subject .This study aims at
examining the effect of an announcement made by the government in respect of Banking
sector, Pharmaceutical and Information Technology sector. In all the three sectors there was
mixed response.
The banking sector has not reacted volatily to the news announcement. Market analysts have
found that a mere 25 basis points will not affect the sector so much. There is general trend of
decline in the market some time after the date of announcements. Different companies have
reacted differently. But there was no chance of making abnormal returns in any company.
In case of pharmaceuticals the prices have fallen even before the date of announcements.
This may be due to information leakage or anticipation of announcement which is perceived
as bad for the sector. In case of IT companies the prices have fallen for larger companies
immediately after the date of announcements.
There has been mixed response even in these two sectors but on the whole there was no
abnormal returns in any of the sectors. The T test conducted also proves this point .The time
taken to adjust itself to the new information is different for each sector but on the whole we
may say it’s anywhere between 20 to 25 days .We may conclude that the Market are
Efficient.

BIBLIOGRAPHY:
Books:
 “Modern Portfolio Theory and Investment analysis” by Elton and Gruber
 “Investment Analysis and Portfolio Management” by Prasanna Chandra
Articles
 Maurice,Litzenbergera and Mcenally; “Adjustment of Stock Prices Announcements
of Unanticipated Changes in Quarterly Earnings”; Journal of Accounting Research;
Autumn 1977.
 Clarke; “The Effect of Fuel Adjustment Clause on Systematic Risk and Market
Valves of Electric Utilities”; Journal of Finance, Vol 35, PP 347-58.
 Hagerman, Zmijewski and Shah;. “The Association between the Magnitude of
Quarterly Earnings Forecast Errors and Risk Adjusted Stock Returns”; Journal of
Accounting Research; autumn 1984.
 Ramachandran;Behaviour of Stock Prices Information Assimilation and Market
Efficiency”; Thesis IIM Ahmedabad,1988
 Subramanian; “The Impact of Political and Economic Event on Stock Prices
Behavior ;Thesis IIM Ahmedabad;1989
Software Used:
 Microsoft Excel
 SPSS Software
Websites:
 www.nseindia.com
 www.google.com
 www.yahoo.com/finance
 www.economictimes.indiatimes.com

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Stock Market Reaction To Policy Change Announcement

STOCK MARKET REACTION TO POLICY CHANGE

A dissertation submitted in partial fulfillment of the requirement for the

Under the guidance of

M P Birla Institute of Management

M.P.Birla Institute Of Management Studies 1

REACTION TO POLICY CHANGES ANNOUNCEMENTS is a bonafide

study, completed under the guidance and supervision of

award of MASTERS OF BUSINESS ADMINISTRATION degree at

degree or diploma or any other similar title of recognition.

M.P.Birla Institute Of Management Studies 2

I am extremely grateful to my Internal Guide Dr. T. V. N. Rao, for his

M.P.Birla Institute Of Management Studies 3

This is to certify that Project titled “STOCK MARKET

M.P.Birla Institute Of Management Studies 4

This is to certify that Project titled “STOCK MARKET

M.P.Birla Institute Of Management Studies 5

Chapter 1 1.1 Efficiency Market 8

Data Analysis and Interpretations

Chapter 6 Findings and Conclusions 54

M.P.Birla Institute Of Management Studies 6

Introduction and Background of Study

M.P.Birla Institute Of Management Studies 7

EFFICIENT MARKET THEORY:

M.P.Birla Institute Of Management Studies 8

SEMI-STRONG FORM EFFICIENCY

M.P.Birla Institute Of Management Studies 9

The Efficient Markets Paradigm

M.P.Birla Institute Of Management Studies 10

EVENT STUDY METHODOLOGY

M.P.Birla Institute Of Management Studies 11

STEPS INVOLVED IN THE METHODOLOGY

1. Collect a sample of firms on whom there may be an impact of announcement.

M.P.Birla Institute Of Management Studies 12

M.P.Birla Institute Of Management Studies 13

M.P.Birla Institute Of Management Studies 14

A study by J Ramachandran(1988) aims at examination of weak and semi strong form of

M.P.Birla Institute Of Management Studies 15

DATA AND SAMPLE SIZE

M.P.Birla Institute Of Management Studies 16

M.P.Birla Institute Of Management Studies 17

BANKING SECTOR PHARMACEUTICAL I T SECTOR

M.P.Birla Institute Of Management Studies 18

The abnormal return for company i on day t is calculated as:

M.P.Birla Institute Of Management Studies 19

ABNORMAL RESIDUAL VALUES BY SPSS SOFTWARE

UTI SBI HDFC ICICI CAN BK BANKEX

M.P.Birla Institute Of Management Studies 20

0.02497 0.01625 0.00137 0.01266 0.01135 0.00336

M.P.Birla Institute Of Management Studies 21

0.03506 0.01007 0.02972 0.02801 0.00167 0.00144

M.P.Birla Institute Of Management Studies 22

0.00248 0.00197 -0.0015 0.00719 0.00696 0.02485

AVERAGE ABNORMAL RETURNS BEFORE AND AFTER THE DATE OF

Companies Before After

‘t’ TEST RESULTS

Companies T calculated T tabulated (5%)

M.P.Birla Institute Of Management Studies 23

CUMULATIVE ABNORMAL RETURNS

BANKEX SBI UTI HDFC ICICI CANBK

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0.01228 0.03689 0.01228 0.01129 0.04285 0.08655

M.P.Birla Institute Of Management Studies 25