Impact of Monetary policy announcements on pricing of shares - A study

The ratio changes announced by the RBI affect the behaviour of financial systems lending trends etc. that drives stock price predictions impacting the capital markets. Monetary policy instruments are dictated by RBI for affecting the liquidity in the financial system and improve or curtail cost of borrowing. The rates are also used by companies to value their future cash flows discounted back to the present. Every market has two sets of investors one who is bullish and the other who is bearish. This price of a stock fluctuates as a result of difference expectations investors have about the company at different times. It is important to have an economic model to predict prices and returns and test the market efficiency. It will also help establish a fact if investors could use past information to efficiently predict prices. Thus testing of efficient market hypotheses is an eternal study continuous research is required to keep the market efficient. Hence the present study is conducted to test impact of key RBI Monetary policy announcements on pricing of shares – study on capital market efficiency.