Analysing Market Reaction to Mergers: Evidence from Stock Price Volatility in Indian Public Sector Banks

This study examines the stock market reaction towards mergers of Indian public sector banks (PSBs), focusing on stock price volatility and its correlation with Bank Nifty. Using an event study methodology, the research evaluates abnormal returns, cumulative average abnormal returns (CAAR) and volatility behaviour around merger announcements for four major PSB mergers announced on 30 August 2019. The analysis employs a 61‑day event window (−30 to +30 days) with Bank Nifty as a sector‑specific benchmark. Results indicate mixed market reactions with mild optimism on the announcement day but predominantly negative CAAR in the post‑announcement period, reflecting investor caution towards integration risks and operational challenges. The study contributes to the literature by providing sector‑specific evidence on investor perception of large‑scale bank consolidation in India and by using Bank Nifty as a benchmark to isolate banking‑sector‑specific market movements. The findings remain relevant for contemporary policy debates on financial sector consolidation, offering lessons for future restructuring efforts in emerging banking systems.