Do Investors Listen to Fiscal Policy? – Study case Bucharest Stock Exchange

Andreea Stoian and Filip Iorgulescu ()

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of this paper is to examine whether information on fiscal policy includes in the stock prices in a way which is consistent with the Efficiency Market Hypothesis. We conduct our investigation for the Bucharest Stock Exchange which is one emerging stock market from Central and Eastern Europe. For the purpose of our study, we employ the methodology suggested by Darrat (1988). We analyse the influence of past fiscal policy on current stock market return using two distinct datasets comprising of quarterly and monthly data. The results indicate that when we do not control for the anticipated and unanticipated effects of fiscal policy, past lags of changes in the overall budget balance and in public debt-to-GDP ratio have a significant impact on stock market return and, thus, we fail in accepting the semi-strong form of the efficiency market hypothesis.

Keywords: fiscal policy; stock return; budget balance; public debt; Efficiency Market Hypothesis (search for similar items in EconPapers)
JEL-codes: E44 E62 G14 H6 (search for similar items in EconPapers)
Date: 2016-06-06
New Economics Papers: this item is included in nep-ger, nep-mac and nep-tra
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