Effects of budget announcement on stock prices in the Indian context

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.