Time Varying Efficiency in Indian Sectors: An Event Study on Demonetization

The study examines the level of inefficiency present in three different sectors of India. More specifically, it applies different estimation techniques to measure the level of efficiency across the agriculture, service and manufacturing sectors by choosing twenty stocks from each of them. Since there are multiple industries belonging to a particular sector, capturing the intra-industry differential in their efficiencies is also crucial. Presence of long range dependence and the time-varying efficiency across the industries belonging to different sectors have been tested. Then, the impact of recent macroeconomic event of Demonetization on these industries have been explored using six event windows. The results confirm that the impact of this event on the industry returns are mostly negative and significant. However, the magnitude of impact varies across industries depending on the level of demand uncertainty and their cash dependence. Finally, the robustness of our findings has been checked using fixed effect panel regression which further validates the results of the event study.