Fiscal policy and stock market efficiency: An ARDL Bounds Testing approach

Andreea Stoian and Filip Iorgulescu

Economic Modelling, 2020, vol. 90, issue C, 406-416

Abstract: The aim of this paper is to investigate the semi-strong market efficiency hypothesis with respect to fiscal policy information, in the context of the Bucharest Stock Exchange. Taking into account that macroeconomic data series of emerging countries usually have a limited size and may be plagued by inconsistencies and structural breaks, this paper proposes an ARDL Bounds testing approach for studying the relationship between stock returns and lagged macroeconomic variables. Moreover, this approach allows us to examine both the long and short-term relationship between fiscal policy and stock returns. The results indicate that, in the long run, stock prices fully and efficiently reflect information on past fiscal policy. However, in the short run, the Romanian stock market reacts efficiently only to unexpected fiscal policy news, while anticipated fiscal policy information displays a significant lagged relationship with current stock returns. In addition, the results also showed that monetary policy information is not incorporated efficiently into stock prices, both in the short and the long run, and its impact on stock returns is larger than the one exerted by fiscal policy.

Keywords: Fiscal policy; Stock returns; Efficient market hypothesis; ARDL Bounds Testing (search for similar items in EconPapers)
JEL-codes: E44 E62 G14 H6 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999319304353
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:90:y:2020:i:c:p:406-416

DOI: 10.1016/j.econmod.2019.12.023

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().