Judging election impact on stock market: evidence from India

Purpose- This study tries to evaluate the influence of election’s results on India's BSE and NSE exchanges at different election time frames. It assesses efficiency of Indian financial market at the time of election and to enquire into the fact whether there exists any immediate effects in terms of sudden changes in stock prices/returns and market volatility on market dynamics as a result of declaration of election result. Methodology- The study is purely based on secondary data and the general elections for the year 2004, 2009, 2014, 2019 and 2024 have been considered. The study used descriptive and analytical method to achieve the desired objective. Monthly along with daily closing prices have been used for BSE and NSE and the volatilities of the stock market before and after 30 days, 15 days and 3 days have been considered for analytical purpose. Actual Return has been calculated using the log difference of previous price and current priceRt= ln(Pt-Pt-1), where P is the price ,Ln is natural logarithm and t is the time period and Rt is Actual Return. Paired t test is used to measure if there is any significant mean difference between the two paired samples. Findings- It has been found that market volatility increases before election results are announced and continue to adjust afterward in India. Results indicate that election results have a limited and temporary impact on returns and volatility, with short-term volatility occurring but not long-term impacts.The analysis of variance indicated that variance in both shorter and longer period [(- 3,+3) days (-30,+30) is not so much statistically prominent, although smaller ups and downs are noticed .This suggests that market volatility is transient and corrects itself over time in India. Moreover, SENSEX return declines gradually in different election times commencing from 2004 till 2024 emphasing the fact that political regime change has initially a little bit notewotrthy impact on stock market returns. Conclusion- This empirical investigation should be construed as an endeavour in understanding stock price, stock return and general election dynamics in the context of the India’s parliamentary political backdrop. Keywords: Election’s impact, daily variance of returns, return, volatility, BSE, NSE, Indian Stock Market. JEL Codes: P16, G14, C41