Impact of Repo Rate Adjustments on Banking Stock Performance in Dhaka Stock Exchange

This study explores the relationship between monetary policy and stock market performance by analyzing the effect of repo rate adjustment on the stock returns of 28 listed banks in the Dhaka Stock Exchange (DSE). Using event study methodology with mean-adjusted and market models, the study finds significant positive cumulative abnormal returns (CARs) of 0.67–0.73% in short-term windows (-1, +1) and (-2, +2). The results also reveal asymmetric effects: repo rate cuts generate higher positive abnormal returns (1.55% to 2.32%) than rate hikes (-0.45% to - 2.16%). However, event-by-event analysis finds a heterogeneous effect on stock returns. Individual bank analysis identifies only four specific banks as the most sensitive to changes in the repo rate. Furthermore, the cross-sectional analysis shows that 31.12% of bank-event combinations yielded CARs exceeding +1%, while 18.88% recorded CARs below -1%. These findings conclude that market responses differ considerably based on the direction and timing of policy changes, as well as institutional characteristics.