Effects of Budget Announcement on Stock
Prices in the Indian Context
T. Manjunatha1*, Zahid Hassan Kharuri2
1Professor, Department of M.B.A, Visvesvaraya
Technological University BDT College of Engineering, Davangere, Karnataka,
India.
2Research Scholar, Visvesvaraya Technological
University.
*Corresponding Author E-mail: tmmanju87@gmail.com,
zkharuri@gmail.com
ABSTRACT:
The stock prices are quick to respond to announcements
of union budgets for structural reforms. The paper tests the effects of union
budget announcement on stock prices by applying event study methodology. The
reactions are tested using market model, Abnormal Returns (AR), Average
Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR) for 15
days prior and 15 days after the event date. Result show that CAARs are
significant for most of the days in the event window. The findings support the
prediction that budget announcement contains information value and therefore
traders can earn abnormal gain on budget announcements in Indian capital
market.
KEYWORDS: Event
study, abnormal returns, average abnormal returns, cumulative average abnormal
returns, budget announcement.
1. INTRODUCTION:
The union budget is the most watched event in economic policy making in
India. The Government tries to design the union budget in such a way that, it
helps the economy to move upwards. The budget expectations tend to affect stock
prices due to trading on both prior and after budget. The Indian stock market
reacts weak to new information due to lack of transparency of information
leading to a less than efficient market. If the market is efficient, then any
new information released is immediately reflected in the share price. Event
studies, pioneered by Fama et. al.1 found that pattern of price adjustment
following major events such as mergers, stock splits, changes in firms’
dividend policies. Ali and Mustafa2 found that change in future
prices depends only on arrival of new information that was unpredictable today
hence it is based on surprise information.
Dhar and Chhaochharia3 analyzed the impact of the
information relating to the announcement of stock split and corporate tax
reduction on stocks listed on NSE by employing event study. Both the events
reflect significantly positive announcement effect. Thereby the study supports
the view that Indian stock market is efficient in semi-strong form. Iqbal and
Mallikarjunappa4., Iqbal and Mallikarjunappa5 reported
that market offers opportunity to earn abnormal returns on cumulative basis
after the quarterly earnings announcement and therefore concluded that Indian
market is not efficient in the semi-strong form. Cready and Gurun6
found that lower earnings results exhibit positive CAAR and move market values
higher. Ball and Shivakumar7 reported that earnings announcements
provide a modest but not overwhelming amount of information in relation to the
market. Mallikarjunappa and Manjunatha8 found that the results of AARs do not
approximate to zero and CAARs show wide fluctuations indicating that abnormal
returns can be earned several days after the event day. Hussin et. al.9
found that lower earnings lead to negative market reaction. Dutta10
examined using t test that the NSE has gradually evolved into a weak form
efficient market in 2010-2011. Babu et. al.11 analyzed the Union
budgets with respect to Indian stock prices and tests the returns from 1991 to
2009. The budget impacted the most extreme effect on stock prices. Datta et.
al.12 used the paired sample t test and founded that there is a
relationship between budget amounts allocated, Nifty, GDP, and market capitalization.
The volatility has been observed high during the budget speech time. Singh and
Dhamija13 found that the economic structure belonging to a country
is closely linked with the stock market as found in that nation. Suroto14
found that there is a market reaction around events, and the market reacts
quickly to absorb information towards a new equilibrium point. Pillai and
Pillai15 found that the markets were in fact inefficient during the
period under study and helps one to understand investor behavior and biases and
the different opportunities one could make use of, in order to make abnormal
profits. Thus, it becomes imperative that the fundamentals of a stock market
should be an indicator of the budget as presented. The review of the studies
shows that there is no clear evidence from the available literature to accept
that Indian stock market is efficient in semi-strong form with respect to union
budget announcement. Therefore, an attempt is made to study the stock price
reactions to budget announcement in Indian capital market. The study aims to
investigate the stock price reactions to budget announcement and to test the
semi strong form of market efficiency in Indian capital market. The results
from the study are expected to provide positive vibes to the investors and
market to have a predictable impact on stock prices. The stock prices should
immediately reflect the budget announcement information and no investors may
make abnormal profits. The researcher proposes the need to study the information
efficiency in Indian capital market.
The
paper is organized in four parts. Part 1 is the introduction; Part 2 presents
objective, data and sample and analysis and tools used; Part 3 results and
analysis; Part 4 presents the summary and conclusions; Part 5 is implications
and scope for further research. References, tables and diagrams are given after
Part 5.
2. RESEARCH DESIGN:
2.1
OBJECTIVE: The
literature review directs to set the below objective for present study.
To examine the stock price reactions to budget
announcement in Indian capital market.
2.2
DATA AND SAMPLE: We use the daily closing share price data of 20
companies which are listed in the Indian stock exchanges. The
company’s selection criteria include; i) the companies selected for the study should
have been listed and traded in Indian stock exchanges and ii) The stock prices
should be available from 2001 to 2020. This study was based on the 20
sample stocks selected from NIFTY 50 stocks listed on NSE India covering major
industries. In this study the following companies have been chosen randomly
from NSE NIFTY 50 stocks. Adani Ports and Special Economic Zone Ltd., Asian
Paints Ltd., Bajaj Auto Ltd., Britannia Industries Ltd., Divi’s Laboratories
Ltd., Dr. Reddy’s Laboratories Ltd., Eicher Motors Ltd., Hindalco Industries
Ltd., Indian Oil Corporation Ltd., ITC Ltd., JSW Steel Ltd., Mahindra and
Mahindra Ltd., Maruti Suzuki India Ltd., Oil and Natural Gas Corporation Ltd.,
Reliance Industries Ltd., Sun Pharmaceutical Industries Ltd., Tata Consumer Products
Ltd., Tata Steels Ltd., Titan Company Ltd., and UPL Ltd. For the study we have
selected union budget announcement as major economic event in Indian capital
market. The data from the year 2001 budget announcement to 2020 were collected
for analysis in the study. Data has been collected from NSE website
nseindia.com.
2.3 ANALYSIS and TOOLS used: Fama et. al. (1969) developed the
event study methodology to explore the information content available in
corporate announcements. Even today this methodology is widely accepted for
extensive use in research. We have used the daily closing prices from NSE Nifty
50 stocks. For the study we have selected 20 stocks data for the period of 20
years. We examine the stock price reactions to the Union Budget announcement by
taking the prices before and after the budget announcement. We use a short
event window of 31 days to examine how the market reacts. The budget
announcement day is taken as the event day.
Statistical Tools:
The secondary data have been analyzed using
the following statistical tools:
First, the logarithmic daily returns have
been found over the previous day’s closing value during the entire 20 year
period. Second, the average returns in pre-budget and post-budget period,
during the previous 15 and the next 15 days are calculated. We have computed
daily stock return, market return, AR, AAR, CAAR for the selected stocks.
Further we also computed the t-test using a table value for significance at 5%.
Event Window: -15………0……..15,
Where 0 is considered as event day, 15 days
prior to event day and 15 days after the event day, a total of 31 days
surrounding the announcement of Union Budget.
Market Adjusted Model:
We use market adjusted model to compute the
AR AAR. Under this model, the expected returns are equal across
securities. The AR is the difference between security return and market return
and this model was given by Cowles (1993)16 and Latane and Jones
(1979)17.
ARi,t = Ri,t – Rm,t
……………………………..Eqn.-1
Where Rm,t is the return on the Nifty 50
Index.
Average Abnormal Returns (AAR):
The following model is used to calculate average
abnormal return – AARs
…………………..……..Eqn.-2
Where, i represent different securities in the study;
N= total number of securities. T= the days in the event window.
The Cumulative Average Abnormal Return (CAAR):
The AAR values are cumulated over 31-day period to
find out cumulative average abnormal return (CAARs) and expect that the CAARs
should be close to zero. The following formula is used for the CAARs.
……………………….…Eqn.-3
Where t= -15,……0,……+15
Where, CAARt is the cumulative
average abnormal return during the event window period of -15 to +15 days.
Parametric Significance Test:
Parametric t test is used to assess the
significance of AARs and CAARs. The 5% level of significance with appropriate
degree of freedom is used. This statistic is given by
AAR AAR
t = ––––––––– t = –––––––––
σ(CAAR)
σ(CAAR)
Where, σ (CAAR) is the
standard cumulative average abnormal return.
We tested the impact of union budget
announcement by using t test and the positive or negative effect of semi-strong
form of market efficiency analysis for this event study. We test whether the
excess returns around the announcement date are different from zero by using
the t statistic for the event. T statistics is used to compare the returns of
the stocks 15 days prior and 15 days after the event. The 5% level of significance with appropriate degree
of freedom is used for t test that there are no significant abnormal returns
during the event window period of 31 days. We bring out the following analysis
to test the objectiv
Table 1A Shows Sample Stocks AAR and CAAR from 2001 to 2005
|
Period
|
2001
|
2002
|
2003
|
2004
|
2005
|
|
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
|
-15
|
-0.001
|
-0.001
|
-0.013
|
-0.013
|
-0.002
|
-0.002
|
-0.002
|
-0.002
|
0.006
|
0.006
|
|
-14
|
0.003
|
0.001
|
0.014
|
0.000
|
0.002
|
0.000
|
-0.003
|
-0.005
|
0.012
|
0.018
|
|
-13
|
0.010
|
0.011
|
0.001
|
0.002
|
-0.003
|
-0.003
|
0.000
|
-0.005
|
-0.005
|
0.013
|
|
-12
|
0.006
|
0.017
|
0.022
|
0.024
|
0.001
|
-0.002
|
-0.005
|
-0.009
|
0.005
|
0.019
|
|
-11
|
0.000
|
0.017
|
0.004
|
0.028
|
0.001
|
-0.001
|
-0.004
|
-0.013
|
-0.001
|
0.018
|
|
-10
|
-0.002
|
0.015
|
-0.013
|
0.015
|
0.003
|
0.002
|
0.016
|
0.002
|
-0.009
|
0.009
|
|
-9
|
-0.002
|
0.013
|
-0.010
|
0.005
|
0.000
|
0.002
|
0.004
|
0.007
|
0.002
|
0.011
|
|
-8
|
-0.008
|
0.004
|
-0.010
|
-0.006
|
0.005
|
0.007
|
-0.003
|
0.004
|
-0.004
|
0.007
|
|
-7
|
-0.004
|
0.001
|
0.025
|
0.020
|
-0.007
|
0.001
|
0.003
|
0.007
|
-0.005
|
0.002
|
|
-6
|
0.016
|
0.016
|
0.002
|
0.021
|
0.000
|
0.000
|
-0.005
|
0.003
|
0.004
|
0.006
|
|
-5
|
-0.002
|
0.014
|
-0.005
|
0.016
|
0.004
|
0.004
|
0.006
|
0.008
|
0.002
|
0.008
|
|
-4
|
-0.005
|
0.010
|
-0.007
|
0.009
|
-0.001
|
0.003
|
0.000
|
0.008
|
0.001
|
0.008
|
|
-3
|
0.003
|
0.012
|
0.003
|
0.012
|
0.002
|
0.004
|
0.004
|
0.012
|
-0.003
|
0.006
|
|
-2
|
0.007
|
0.020
|
-0.019
|
-0.007
|
0.001
|
0.006
|
0.005
|
0.016
|
-0.004
|
0.002
|
|
-1
|
-0.023
|
-0.003
|
0.000
|
-0.008
|
0.004
|
0.010
|
0.001
|
0.017
|
-0.004
|
-0.002
|
|
0
|
0.010
|
0.007
|
-0.004
|
-0.011
|
0.007
|
0.017
|
-0.005
|
0.013
|
0.002
|
0.000
|
|
1
|
0.005
|
0.012
|
0.012
|
0.001
|
-0.001
|
0.015
|
-0.002
|
0.011
|
-0.003
|
-0.003
|
|
2
|
-0.006
|
0.006
|
-0.015
|
-0.015
|
-0.007
|
0.008
|
-0.004
|
0.006
|
-0.003
|
-0.006
|
|
3
|
0.000
|
0.006
|
-0.010
|
-0.024
|
0.001
|
0.009
|
-0.008
|
-0.001
|
0.003
|
-0.003
|
|
4
|
-0.020
|
-0.013
|
-0.022
|
-0.047
|
0.000
|
0.009
|
0.007
|
0.005
|
0.002
|
-0.001
|
|
5
|
0.001
|
-0.012
|
0.013
|
-0.033
|
0.000
|
0.010
|
-0.001
|
0.005
|
-0.002
|
-0.003
|
|
6
|
-0.005
|
-0.017
|
0.001
|
-0.033
|
-0.002
|
0.008
|
0.001
|
0.006
|
-0.007
|
-0.009
|
|
7
|
0.007
|
-0.010
|
-0.005
|
-0.038
|
0.002
|
0.010
|
-0.002
|
0.004
|
0.003
|
-0.006
|
|
8
|
-0.028
|
-0.039
|
-0.003
|
-0.040
|
-0.002
|
0.009
|
-0.006
|
-0.003
|
0.001
|
-0.005
|
|
9
|
-0.007
|
-0.046
|
0.000
|
-0.040
|
0.000
|
0.009
|
-0.005
|
-0.008
|
-0.003
|
-0.008
|
|
10
|
0.020
|
-0.026
|
0.000
|
-0.040
|
-0.002
|
0.007
|
0.000
|
-0.008
|
-0.001
|
-0.008
|
|
11
|
0.007
|
-0.019
|
-0.001
|
-0.041
|
-0.007
|
0.000
|
0.006
|
-0.002
|
-0.001
|
-0.009
|
|
12
|
0.006
|
-0.012
|
-0.002
|
-0.043
|
-0.013
|
-0.013
|
0.002
|
0.000
|
-0.010
|
-0.019
|
|
13
|
0.007
|
-0.005
|
-0.005
|
-0.048
|
0.007
|
-0.006
|
-0.007
|
-0.007
|
-0.011
|
-0.030
|
|
14
|
-0.009
|
-0.014
|
0.013
|
-0.036
|
0.004
|
-0.003
|
-0.001
|
-0.007
|
-0.007
|
-0.037
|
|
15
|
0.009
|
-0.005
|
0.005
|
-0.030
|
0.005
|
0.003
|
0.000
|
-0.007
|
-0.006
|
-0.042
|
Source: AAR and CAAR’s are computed by the researchers using equation 1, 2 and
3 for the years.
|
Note 1: First row of the Table 1A
respresents the study period splited into 5years
Note 2: First column indicates the event
window period -15 to +15 days which is explained under the heading
methodology
|
Note 3: Second row and subsequent rows of
the table represents the AAR and CAAR computed values explained under the
heading equation 2 and 3 respectively.
Note 4: The source and notes
hold good for the Table 1B, 1C and 1D also.
|
Table 1B Shows Sample Stocks AAR and CAAR from 2001 to 2005
|
Period
|
2006
|
2007
|
2008
|
2009
|
2010
|
|
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
|
-15
|
0.002
|
0.002
|
0.005
|
0.005
|
-0.003
|
-0.003
|
0.008
|
0.008
|
0.003
|
0.003
|
|
-14
|
-0.010
|
-0.007
|
-0.002
|
0.003
|
-0.020
|
-0.023
|
-0.002
|
0.006
|
0.016
|
0.019
|
|
-13
|
0.007
|
0.000
|
-0.009
|
-0.006
|
-0.009
|
-0.031
|
-0.004
|
0.002
|
-0.001
|
0.019
|
|
-12
|
-0.001
|
-0.001
|
-0.032
|
-0.037
|
0.020
|
-0.012
|
-0.009
|
-0.007
|
0.014
|
0.033
|
|
-11
|
-0.004
|
-0.004
|
-0.006
|
-0.043
|
0.013
|
0.001
|
-0.001
|
-0.008
|
0.005
|
0.038
|
|
-10
|
0.003
|
-0.001
|
0.010
|
-0.033
|
0.011
|
0.012
|
-0.005
|
-0.013
|
0.015
|
0.053
|
|
-9
|
0.003
|
0.002
|
0.023
|
-0.009
|
0.005
|
0.017
|
0.005
|
-0.008
|
0.011
|
0.065
|
|
-8
|
-0.019
|
-0.017
|
0.006
|
-0.004
|
0.000
|
0.017
|
-0.003
|
-0.011
|
0.023
|
0.088
|
|
-7
|
0.003
|
-0.014
|
-0.005
|
-0.009
|
-0.002
|
0.015
|
-0.005
|
-0.016
|
0.015
|
0.103
|
|
-6
|
0.008
|
-0.007
|
0.004
|
-0.005
|
0.005
|
0.020
|
0.009
|
-0.007
|
0.018
|
0.120
|
|
-5
|
0.000
|
-0.007
|
-0.009
|
-0.014
|
-0.007
|
0.013
|
-0.001
|
-0.008
|
0.014
|
0.135
|
|
-4
|
0.000
|
-0.006
|
-0.020
|
-0.034
|
0.002
|
0.015
|
0.003
|
-0.004
|
0.009
|
0.144
|
|
-3
|
-0.006
|
-0.012
|
0.009
|
-0.026
|
-0.001
|
0.014
|
0.006
|
0.001
|
0.010
|
0.154
|
|
-2
|
0.010
|
-0.002
|
-0.010
|
-0.036
|
0.015
|
0.029
|
-0.002
|
-0.001
|
0.010
|
0.164
|
|
-1
|
-0.004
|
-0.006
|
-0.025
|
-0.060
|
0.011
|
0.041
|
-0.002
|
-0.003
|
0.008
|
0.172
|
|
0
|
0.008
|
0.002
|
0.009
|
-0.051
|
0.011
|
0.052
|
0.020
|
0.017
|
0.015
|
0.187
|
|
1
|
0.005
|
0.007
|
-0.007
|
-0.058
|
0.008
|
0.060
|
0.012
|
0.029
|
0.015
|
0.202
|
|
2
|
-0.003
|
0.004
|
-0.039
|
-0.098
|
-0.002
|
0.057
|
-0.004
|
0.025
|
0.007
|
0.209
|
|
3
|
0.020
|
0.024
|
0.004
|
-0.094
|
-0.003
|
0.054
|
-0.010
|
0.014
|
0.006
|
0.215
|
|
4
|
-0.010
|
0.014
|
-0.003
|
-0.097
|
-0.002
|
0.052
|
-0.008
|
0.007
|
0.005
|
0.220
|
|
5
|
-0.030
|
-0.016
|
0.030
|
-0.067
|
-0.001
|
0.052
|
-0.003
|
0.004
|
0.009
|
0.229
|
|
6
|
0.003
|
-0.013
|
-0.003
|
-0.070
|
-0.015
|
0.037
|
0.003
|
0.007
|
0.009
|
0.237
|
|
7
|
0.007
|
-0.005
|
0.011
|
-0.059
|
0.005
|
0.042
|
-0.002
|
0.004
|
0.004
|
0.241
|
|
8
|
-0.002
|
-0.008
|
0.020
|
-0.038
|
-0.021
|
0.021
|
0.015
|
0.019
|
0.018
|
0.259
|
|
9
|
-0.005
|
-0.012
|
-0.022
|
-0.060
|
-0.008
|
0.013
|
0.001
|
0.020
|
0.008
|
0.268
|
|
10
|
0.001
|
-0.012
|
0.013
|
-0.047
|
-0.008
|
0.005
|
-0.007
|
0.013
|
0.011
|
0.279
|
|
11
|
0.001
|
-0.011
|
-0.010
|
-0.056
|
-0.006
|
-0.001
|
0.003
|
0.016
|
0.008
|
0.287
|
|
12
|
0.007
|
-0.004
|
0.012
|
-0.045
|
-0.012
|
-0.013
|
0.014
|
0.030
|
0.004
|
0.291
|
|
13
|
-0.002
|
-0.005
|
0.007
|
-0.037
|
-0.003
|
-0.016
|
0.014
|
0.044
|
0.008
|
0.299
|
|
14
|
-0.001
|
-0.006
|
0.013
|
-0.025
|
0.009
|
-0.007
|
0.004
|
0.049
|
0.014
|
0.313
|
|
15
|
-0.002
|
-0.008
|
0.019
|
-0.006
|
0.003
|
-0.004
|
0.008
|
0.056
|
0.013
|
0.326
|
Table 1C Shows Sample Stocks AAR and CAAR from 2001 to 2005
|
Period
|
2011
|
2012
|
2013
|
2014
|
2015
|
|
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
|
-15
|
-0.012
|
-0.012
|
-0.103
|
-0.103
|
0.003
|
0.003
|
-0.011
|
-0.011
|
0.003
|
0.003
|
|
-14
|
0.000
|
-0.013
|
0.094
|
-0.009
|
0.022
|
0.024
|
0.005
|
-0.006
|
0.003
|
0.005
|
|
-13
|
-0.004
|
-0.017
|
0.033
|
0.024
|
0.024
|
0.049
|
0.001
|
-0.004
|
0.002
|
0.007
|
|
-12
|
-0.003
|
-0.020
|
-0.024
|
0.000
|
0.019
|
0.067
|
0.006
|
0.002
|
0.006
|
0.013
|
|
-11
|
0.005
|
-0.015
|
0.025
|
0.025
|
0.023
|
0.091
|
-0.005
|
-0.003
|
-0.001
|
0.012
|
|
-10
|
-0.003
|
-0.018
|
0.016
|
0.040
|
0.011
|
0.102
|
0.001
|
-0.002
|
0.006
|
0.017
|
|
-9
|
-0.010
|
-0.028
|
-0.046
|
-0.006
|
0.017
|
0.119
|
0.009
|
0.007
|
0.009
|
0.026
|
|
-8
|
-0.004
|
-0.032
|
-0.030
|
-0.036
|
0.033
|
0.152
|
0.008
|
0.016
|
0.006
|
0.032
|
|
-7
|
0.000
|
-0.032
|
0.007
|
-0.030
|
0.017
|
0.170
|
0.001
|
0.016
|
0.002
|
0.034
|
|
-6
|
-0.003
|
-0.035
|
0.110
|
0.081
|
0.013
|
0.183
|
0.000
|
0.016
|
-0.002
|
0.033
|
|
-5
|
0.001
|
-0.034
|
0.031
|
0.112
|
0.016
|
0.199
|
-0.001
|
0.015
|
-0.009
|
0.023
|
|
-4
|
0.007
|
-0.027
|
0.076
|
0.188
|
0.012
|
0.211
|
-0.009
|
0.006
|
-0.004
|
0.019
|
|
-3
|
-0.013
|
-0.039
|
0.048
|
0.236
|
-0.001
|
0.210
|
0.001
|
0.006
|
-0.003
|
0.017
|
|
-2
|
-0.003
|
-0.043
|
-0.049
|
0.187
|
0.031
|
0.241
|
0.003
|
0.009
|
0.004
|
0.021
|
|
-1
|
0.016
|
-0.027
|
-0.022
|
0.165
|
0.010
|
0.250
|
0.002
|
0.011
|
-0.005
|
0.015
|
|
0
|
0.008
|
-0.018
|
-0.025
|
0.140
|
0.025
|
0.275
|
0.004
|
0.014
|
-0.006
|
0.009
|
|
1
|
-0.001
|
-0.019
|
0.025
|
0.165
|
0.017
|
0.292
|
0.002
|
0.017
|
-0.006
|
0.003
|
|
2
|
-0.007
|
-0.026
|
0.081
|
0.246
|
0.026
|
0.318
|
-0.001
|
0.016
|
-0.005
|
-0.002
|
|
3
|
0.008
|
-0.018
|
-0.091
|
0.155
|
0.018
|
0.337
|
-0.002
|
0.013
|
0.003
|
0.001
|
|
4
|
-0.004
|
-0.022
|
0.049
|
0.204
|
0.021
|
0.358
|
0.000
|
0.013
|
0.001
|
0.002
|
|
5
|
0.000
|
-0.022
|
-0.060
|
0.143
|
0.025
|
0.383
|
-0.011
|
0.002
|
0.000
|
0.002
|
|
6
|
0.001
|
-0.021
|
0.063
|
0.207
|
0.020
|
0.403
|
-0.001
|
0.001
|
-0.005
|
-0.003
|
|
7
|
0.006
|
-0.014
|
-0.030
|
0.176
|
0.020
|
0.422
|
-0.003
|
-0.003
|
0.004
|
0.001
|
|
8
|
-0.001
|
-0.015
|
0.005
|
0.181
|
0.014
|
0.436
|
0.001
|
-0.001
|
-0.005
|
-0.004
|
|
9
|
-0.008
|
-0.023
|
0.129
|
0.310
|
0.018
|
0.454
|
-0.003
|
-0.004
|
-0.010
|
-0.014
|
|
10
|
0.008
|
-0.015
|
0.035
|
0.346
|
0.027
|
0.481
|
0.001
|
-0.003
|
0.012
|
-0.002
|
|
11
|
-0.003
|
-0.019
|
0.051
|
0.396
|
0.016
|
0.498
|
-0.001
|
-0.004
|
-0.001
|
-0.003
|
|
12
|
-0.005
|
-0.024
|
-0.006
|
0.390
|
0.008
|
0.506
|
0.006
|
0.003
|
0.004
|
0.001
|
|
13
|
0.006
|
-0.017
|
-0.064
|
0.327
|
0.011
|
0.517
|
0.007
|
0.010
|
-0.009
|
-0.008
|
|
14
|
0.006
|
-0.011
|
0.019
|
0.345
|
0.016
|
0.533
|
-0.004
|
0.006
|
0.006
|
-0.003
|
|
15
|
-0.002
|
-0.013
|
0.000
|
0.346
|
0.008
|
0.541
|
0.000
|
0.005
|
0.000
|
-0.002
|
Table 1D Shows Sample Stocks AAR and CAAR from 2001 to 2005
|
Period
|
2016
|
2017
|
2018
|
2019
|
2020
|
|
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
AAR
|
CAAR
|
|
-15
|
0.006
|
0.006
|
0.002
|
0.002
|
0.041
|
0.041
|
-0.002
|
-0.002
|
0.007
|
0.007
|
|
-14
|
-0.002
|
0.004
|
-0.006
|
-0.004
|
0.043
|
0.084
|
0.001
|
-0.002
|
0.009
|
0.015
|
|
-13
|
0.003
|
0.008
|
-0.001
|
-0.005
|
0.034
|
0.118
|
-0.003
|
-0.005
|
0.005
|
0.020
|
|
-12
|
-0.003
|
0.005
|
-0.005
|
-0.009
|
0.019
|
0.137
|
-0.003
|
-0.008
|
0.005
|
0.025
|
|
-11
|
0.001
|
0.006
|
0.001
|
-0.008
|
0.055
|
0.193
|
0.007
|
0.000
|
0.005
|
0.030
|
|
-10
|
0.004
|
0.011
|
0.006
|
-0.002
|
0.029
|
0.222
|
-0.008
|
-0.008
|
0.002
|
0.032
|
|
-9
|
-0.002
|
0.008
|
0.007
|
0.005
|
0.055
|
0.277
|
0.002
|
-0.006
|
-0.005
|
0.027
|
|
-8
|
-0.007
|
0.001
|
0.001
|
0.007
|
0.045
|
0.322
|
0.000
|
-0.006
|
-0.002
|
0.024
|
|
-7
|
-0.004
|
-0.003
|
0.006
|
0.013
|
0.067
|
0.389
|
0.006
|
0.000
|
0.007
|
0.032
|
|
-6
|
0.000
|
-0.004
|
0.006
|
0.019
|
0.030
|
0.419
|
0.001
|
0.001
|
0.006
|
0.037
|
|
-5
|
0.003
|
-0.001
|
-0.002
|
0.017
|
0.027
|
0.446
|
-0.004
|
-0.003
|
0.009
|
0.047
|
|
-4
|
0.002
|
0.001
|
-0.005
|
0.012
|
0.038
|
0.484
|
0.007
|
0.004
|
0.002
|
0.048
|
|
-3
|
0.004
|
0.005
|
-0.001
|
0.011
|
0.012
|
0.497
|
0.000
|
0.004
|
0.001
|
0.049
|
|
-2
|
-0.007
|
-0.002
|
0.004
|
0.014
|
0.028
|
0.524
|
0.002
|
0.006
|
0.000
|
0.049
|
|
-1
|
-0.007
|
-0.009
|
0.008
|
0.023
|
0.038
|
0.562
|
-0.006
|
0.000
|
-0.008
|
0.040
|
|
0
|
-0.008
|
-0.016
|
-0.002
|
0.021
|
-0.018
|
0.544
|
0.002
|
0.002
|
-0.016
|
0.024
|
|
1
|
0.017
|
0.001
|
-0.001
|
0.020
|
0.011
|
0.555
|
0.005
|
0.007
|
0.025
|
0.049
|
|
2
|
-0.024
|
-0.023
|
-0.002
|
0.018
|
-0.002
|
0.553
|
-0.005
|
0.002
|
-0.007
|
0.043
|
|
3
|
-0.006
|
-0.029
|
-0.007
|
0.011
|
0.040
|
0.593
|
0.006
|
0.008
|
0.003
|
0.046
|
|
4
|
-0.007
|
-0.036
|
0.004
|
0.015
|
0.056
|
0.648
|
-0.001
|
0.006
|
-0.001
|
0.045
|
|
5
|
0.004
|
-0.032
|
-0.005
|
0.010
|
0.012
|
0.660
|
-0.005
|
0.001
|
-0.024
|
0.021
|
|
6
|
0.000
|
-0.032
|
-0.009
|
0.001
|
0.053
|
0.713
|
-0.003
|
-0.002
|
0.010
|
0.031
|
|
7
|
0.006
|
-0.027
|
0.006
|
0.007
|
0.023
|
0.737
|
-0.004
|
-0.005
|
0.002
|
0.033
|
|
8
|
0.002
|
-0.025
|
0.004
|
0.011
|
0.055
|
0.791
|
-0.001
|
-0.006
|
0.003
|
0.036
|
|
9
|
-0.006
|
-0.030
|
0.001
|
0.012
|
0.012
|
0.803
|
-0.004
|
-0.010
|
-0.010
|
0.026
|
|
10
|
-0.004
|
-0.034
|
0.001
|
0.013
|
0.012
|
0.815
|
0.008
|
-0.002
|
-0.007
|
0.019
|
|
11
|
-0.015
|
-0.049
|
-0.005
|
0.007
|
0.031
|
0.846
|
0.001
|
-0.001
|
0.001
|
0.020
|
|
12
|
-0.008
|
-0.057
|
-0.007
|
0.000
|
0.040
|
0.886
|
-0.009
|
-0.010
|
0.018
|
0.038
|
|
13
|
-0.005
|
-0.062
|
-0.003
|
-0.003
|
0.029
|
0.915
|
0.004
|
-0.006
|
-0.005
|
0.033
|
|
14
|
-0.005
|
-0.067
|
-0.005
|
-0.008
|
0.065
|
0.980
|
0.005
|
0.000
|
-0.025
|
0.008
|
|
15
|
0.003
|
-0.064
|
-0.003
|
-0.010
|
0.054
|
1.034
|
-0.009
|
-0.009
|
0.004
|
0.013
|
Chart 1 and 2 showing AARs Trends of 31- Day
Event Window for the year 2001 and 2002.
Chart 3 and 4 showing AARs Trends of 31- Day Event
Window for the year 2003 and 2004.
Chart 5 and 6 showing AARs Trends of 31- Day
Event Window for the year 2005 and 2006.
Chart 7 and 8 showing AARs Trends of 31- Day
Event Window for the year 2007 and 2008.
Chart 9 and 10 showing AARs Trends of 31-
Day Event Window for the year 2009 and 2010.
Chart 11 and 12 showing AARs Trends of 31-
Day Event Window for the year 2011 and 2012.
Chart 13 and 14 showing AARs Trends of 31-
Day Event Window for the year 2013 and 2014.
Chart 15 and 16 showing AARs Trends of 31-
Day Event Window for the year 2015 and 2016.
Chart 17 and 18 showing AARs Trends of 31-
Day Event Window for the year 2017 and 2018.
Chart 19 and 20 showing AARs Trends of 31-
Day Event Window for the year 2019 and 2020.
3. RESULTS AND ANALYSIS:
Table 1 and 2 and figure 1 to 20 show the AAR and
Table 3 and figure 21 show the values of CAAR values for the sample data of
budget announcement for market adjusted model of 2001 to 2020. The significant
AARs are observed as positive for market adjusted model for most of the days in
the event window. This shows that market is positively responded to the budget
announcement. Further the AAR on the event day (0) are positive for 13 years
and negative for 7 years. The results of AARs in market adjusted model are
positively insignificant for majority of the days in the event window. In
particular, on the day of budget announcement (day 0) the AAR is positive and
insignificant and on day 1 for the study period. This shows that investors
reacted positively on day 1 of the budget announcement news. The results appear
to be a small positive trend in event window leading up to positive returns. It
shows that budget announcement had a positive impact on the market on the day
of budget announcements. The results imply that the investors can anticipate
the publicly available information and use the same to generate abnormal
returns.
To get the robust results, CAAR value was calculated
during the event window of 31 days. The CAAR values are found to be positive
and significant after the event day for the market model. Further, the CAAR
values are increasing continuously during the window period. This phenomenon
indicates that budget announcement yields significant positive abnormal returns
when they buy and hold during the budget period. Overall, the t test results
indicate that AARs are close to zero and CAARs are not close to zero which
generates abnormal return to the investor if they use buy and hold strategy
during the budget announcement. This shows that the investors can hold their
investment during the budget announcement and generate abnormal profit which is
against the theory of EMH. The results prove that budget announcement is a
predictable event.
4. SUMMARY AND CONCLUSION:
The empirical study examines the performance of sample
stocks by using market adjusted model. The paper investigated the information
content in stock prices on the release of union budget announcement by using
event study and cohen et. al. (1983)18 methodology in this paper.
The result of the number of positive and negative AARs and CAARs show that
there are more numbers of positive values than negative values during the event
window of 31 days. This result shows that market has positively reacted on the
release of the union budget announcement information. Therefore, it is
concluded that there is a significant difference between the number of positive
and negative AAR. The budget announcement information can generate significant
abnormal profits to the trades in Indian capital market. These results call for
regulatory authorities to make policy changes for the proper dissemination of
budget information.
5. IMPLICATIONS AND SCOPE FOR
FURTHER RESEARCH:
This study covered larger sample covering +15 days and
-15 days from the event day in Indian capital market. The results obtained from
the study can be generalized for investors to be applicable for other economic
events such as Goods and Services Tax announcement, monetary policy
announcement and other major economic events in the Indian capital market.
6. REFERENCES:
1.
Eugune F. Fama, (1969).
The Behavior of Stock Market Prices, Journal of Business, 38(1), 34-105.
2.
Ali, S. S., and Mustafa,
K. (2001). Testing Semi-strong Form Efficiency of Stock Market, The Pakistan
Development Review, 40(4), 651-674.
3.
Dhar, S. and
Chhaochharia, S. (2008), “Market Reactions around Stock Splits and Bonus
Issues: Some Indian Evidence”, http://ssrn.com/abstract=1087200,
http://dx.doi.org/10.2139/ssrn.1087200, 1-24.
4.
Iqbal and
Mallikarjunappa, T. (2007). Market reactions to earnings information: an empirical
study. AIMS International Journal of Management, May, 1(2), 153-167.
5.
Iqbal and
Mallikarjunappa T. (2008). The behaviour of Indian stock prices and returns: Is
the stock market efficient? SCOUR -Journal of Institute of Productivity and
Management, 2(2), 39-46.
6.
Cready, W.M. and Gurun,
U.G. (2010). ‘Aggregate market reaction to earnings announcements’, Journal of
Accounting Research, 48(2), 289–334.
7.
Ball, R. and Shivakumar,
L. (2008). ‘How much new information is there in earnings? Journal of Accounting
Research, 46(5), 975–1016.
8.
Mallikarjunappa T. and
Manjunatha T. (2009). Stock Price Reactions to Dividend Announcements, Journal
of Management and Public Policy, 1(1), 43- 56.
9.
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