Testing Semi-Strong Efficiency of Indian Stock Market – Evidence from Union Budget
Keywords:
Union Budget, Abnormal return, Event study, Cumulative Abnormal Return, Efficient Market HypothesisAbstract
The movement of share prices is very unpredictable in any country’s economy. There are certain micro (reported profit, Dividend, Book Value per share etc.) pay-out ratio and macro-economic variables (Budget, Interest rate, crude price, foreign exchange rate fluctuations etc.) which are held responsible for the movement in stock price. The impact of certain events cannot be predicted by the stock market with certainty because of their nature. The Annual Budget presented in the Parliament of India, is one such event. A budget is a powerful tool in the hand of the Government to control the economic resources of the country. It contains proposals regarding changes in direct and indirect taxes, industrial policy, allocation of resources and the fiscal deficit which may have favourable or adverse impact on certain sectors of stock Market. Therefore, the current study entitled “Impact of Union Budget on Indian Stock Market” has been undertaken with an objective to investigate the Indian stock markets reaction reflect the market efficiency in semi strong form or not. The required data has been collected from capitalline data base. In order to realise the stated objectives the researchers have employed an event study methodology. For this purpose of the study, the date on which finance bill was taken as the event date (t = 0) the 31 days enclosing the date of budget (i.e., t= -30, ………. 0,……….. +30) Is labelled as the event window. The current study revealed the following major findings: the efficiency of stock market which absorbs the new information of annul finance bill and does not reflect too much on return. There is a degree of volatility in stock market over budget period but beyond seven days that volatility because of budget fades away and the market seems to absorb the information of annual fiancé bill within this phase itself and thereafter the daily return and the volatility on returns seems to be unaffected by the budget. The Indian stock market appears to be fairly efficient at information processing about the Union Budget.
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