Stock Market

The study draws attention to the Reserve Bank of India’s communication as a policy tool and its impact on market participants. It first aims to quantify the qualitative variable—communication by employing textual analysis methods. The investigation starts by extracting the tone of monetary policy statements and trace its transmission on market sentiment in the presence of various informational, macroeconomic, and financial controls. The work concludes that market participants draw inferences from the tone of the RBI’s monetary policy statement and update their information set about the present state and prospects. 

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The recent surge in stock prices in India sparked off a debate on a possible bubble in the Indian stock market. The attempt here is to detect and date stamp bubbles present, if any, in the Indian stock market using a recursive econometric technique. This technique can help identify bubbles as they emerge, not just after they have exploded. This study does not indicate any explosive price behaviour in the Indian stock market. Thereby, the presence of any bubbles during the study period is not detected. The sharp decline and the subsequent recovery of the stock prices during the past 15 months was most probably an overreaction to the pandemic.

This paper explores the interplay between the Union Budget and the stock market in the following areas: the extent to which the stock market response to the Budget is consistent with the behaviour that we might expect in an efficient market; the role of the Budget in the Indian economy, using the stock market as an information processing tool; and the extent to which empirical research can guide hedging and trading around the Budget date.

Irrational Exuberance by Robert J Shiller; Princeton University Press, Princeton, New Jersey, 2000; £ 17.50 (hardback), pp xxi + 296.