Reaction of the stock market to union budget and monetary policy announcements

This paper sets to examine the impact of the announcement of union budget and monetary policy on the stock market. The time period covered is 10 years i.e. from the year 2000-2009. All the union budgets presented and monetary policy announcements of this period have been considered. The BSE 30 share index Sensex has been taken as the indicator of the reaction of the stock market. Logarithmic daily returns have been calculated for the entire period. Average returns have been calculated during the next and previous three, fifteen and thirty days around the announcements of union budget and monetary policy. Paired t-tests are carried out among different periods during announcement days. F-tests are also carried out to compare the last 30 days returns with next three fifteen and thirty days. The findings of the paper are that the union budget and monetary policy announcements have no impact on the stock market in the long run. However, in the short run impact may be either way i.e. positive as well as negative.