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The Impact of Demonetization on the Short-Term and Long-Term Returns of India’s Leading Real Estate Index

Srinivas Nippani and Davinder Malhotra
The Journal of Wealth Management Summer 2020, 23 (1) 88-97; DOI: https://doi.org/10.3905/jwm.2020.1.104
Srinivas Nippani
is professor of finance and regents professor at Texas A&M University-Commerce in Commerce, TX
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Davinder Malhotra
is Nydick Family term chair and professor of finance at Thomas Jefferson University in Philadelphia, PA
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Abstract

This article examines the short-term and long-term impact of demonetization on the daily and monthly returns of the Standard & Poor Bombay Stock Exchange (S&P BSE) Realty Index, India’s leading real estate index. Demonetization is supposed to result in a liquidity crunch in the market and have a negative impact on real estate activity and real estate stock market returns. The results suggest that the S&P BSE Realty Index had statistically lower returns immediately after the announcement of demonetization. However, the impact dissipated within 1 month. Furthermore, when we compared the monthly returns from the S&P BSE Realty Index with similar returns on the BSE Sensex index, we found no long-term impact of demonetization on the Realty Index. Our results suggest that markets reacted to demonetization as an opportunity to move to a cashless system that will reform the real estate sector and attract global investors, including hedge funds, to invest in the real estate market of India because of growing demand for residential and commercial real estate.

TOPICS: Real estate, emerging markets, wealth management, currency

Key Findings

  • • Markets reacted to demonetization as an opportunity to move to a cashless system that will reform the real estate sector and attract global investors including hedge funds to invest in the real estate market of India because of growing demand for residential and commercial real estate.

  • • On the day of the event and the day following the event, the S&P BSE Realty Index returns were negative. These returns were short term only and dissipated a few days after the announcement.

  • • Short-term after effects of demonetization are consistent with previous studies that analyzed the effect of demonetization because of introduction of a single currency, the euro.

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The Journal of Wealth Management: 23 (1)
The Journal of Wealth Management
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The Impact of Demonetization on the Short-Term and Long-Term Returns of India’s Leading Real Estate Index
Srinivas Nippani, Davinder Malhotra
The Journal of Wealth Management Apr 2020, 23 (1) 88-97; DOI: 10.3905/jwm.2020.1.104

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The Impact of Demonetization on the Short-Term and Long-Term Returns of India’s Leading Real Estate Index
Srinivas Nippani, Davinder Malhotra
The Journal of Wealth Management Apr 2020, 23 (1) 88-97; DOI: 10.3905/jwm.2020.1.104
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