VSRD International Journal of Business and Management Research, Vol.

IV Issue II February 2014 / 35

e-ISSN : 2231-248X, p-ISSN : 2319-2194 VSRD International Journals : www.vsrdjournals.com
RESEARCH ARTICLE
A PRAGMATIC STUDY OF BUDGET ANNOUNCEMENTS & STOCK
MARKET PERFORMANCE : INDIA, US & UK PANORAMA
1
Kirti Khanna* and
2
Neeraj Gogia
1,2
Assistant Professor, Department of Commerce, NIMS University, Jaipur, Rajasthan, INDIA.
*Corresponding Author: khanna.kirti24@gmail.com
ABSTRACT
The stock market behaviour and trend can be move according to the different internal, external, micro economic and macro-economic
factors. The impact of some events that definitely occurs cant be envisaged by the stock market with confidence due to their nature. A
budget is an influential instrument in the hands of the Government to control the fiscal resources of country. The Government Budget
announcement is one of the important factors as it is related to the financial or economic health of country involving all the industries.
The study considered the stock market behaviour on pre and post announcements of Govt. budgets (India: Union Budget, US: Federal
Budget and UK Govt. Budget) covering the period of study F.Y. 2008-09 to 2010-11. For analysis only trading days have been taken
into consideration and different statistical measures applied.
Keywords: Budget, Economy, Stock Market Indices, Stock Market Volatility.
JEL Classification: C1, C4, G1, H5, H6.

1. INTRODUCTION
Markets are constantly in a state of uncertainty and flux
and money is made by discounting the obvious and
betting on the unexpected. - George Soros
The above saying of George Soros illustrates the
uncertain and fluctuating condition of stock market.
There are so many factors and the different determinants
(micro or macro levels) of market, by which the market
has its more volatile and most fluctuating trend over the
span of its life. In the modern economic environment, the
stock market index of a country is said to act as the
barometer of its economic health. The impact of some
events that definitely occurs cant be envisaged by the
stock market with confidence due to their nature. A
budget is an influential instrument in the hands of the
Government to control the fiscal resources of country.
Government has numerous policies to execute in the
overall mission of performing its role to meet up the
objectives of social & economic growth. For
implementing these policies, it has to spend huge amount
of funds on defence, administration, and development,
welfare projects and variety of other assistance
operations. The budget is conventionally an important
part of the financial year as the Government publicizes
accurately what are the different plans for the next year,
and up to what extent it has accomplished its promises
announced to do last year.
The study considered the stock market behaviour
during the announcements of Governments financial
budgets reflecting the financial or economic health of
country involving all the industries. In this way
researcher has taken into consideration three countries;
India (Union Budget), United States of America (Federal
Budget) and United Kingdom (Government Budget).
In India, Union budget is presented in the month of
February. All throughout February, the budget distresses
shake the Indian stock market, and present the picture of
more-or-less much volatility. Before 2000, budgets
were presented at 5PM, an overshadow of the British
period when the Indian budget was presented to
coincide with the markets in England. Yashwant Sinha,
the then Finance Minister, changed this and Indian
markets have been blessed with enormous budget
moves ever since.
United States Government Budget known as Federal
Budget. It is presented by the President as a proposal
containing estimated funding levels for the next Financial
Year, to the U.S. Congress. The government applies
a budget process to create the United States federal
budget. Congress and the President of the United States
are follows the structure established by the Budget and
Accounting Act 1921 and the Congressional Budget and
Impoundment Control Act 1974, to formulate the budget.
The President submits a budget between the first Monday
in January and the first Monday in February, as specified
in Federal Budget Legislation. In modern times, the
President's budget submission known as Budget of the
U.S. Government is issued in the first week of February.
The Congressional Budget Office (CBO) publishes an
analysis of the President's budget proposals each year in
March.
The United Kingdom budget is a typically an annual
budget set by HM Treasury (His or Her Majestys
Treasury) outline the revenues to be congregated by HM
Revenue and Customs and the expenditures of the public
sector, falling in line with governmental policies. Every
year the Chancellor of the Exchequer makes a major
speech to the House of Commons on the state of the
Kirti Khanna and Neeraj Gogia VSRDIJBMR, Vol. IV (II) February 2014 / 36

national finances and the Government's proposals for
changes to taxation.
UK Financial Year covers the period from April to
March. The budget is often released in March of the
previous fiscal year, less than one month before the
beginning of the new fiscal year. In the UK Parliament is
not expected to take action on a budget for the fiscal year
until the summer, several months after the start of the
fiscal year. For that reason, Parliament typically passes a
"Vote on Account" early to provide stopgap funding until
the new budget is enacted. In the UK, departments submit
their funding requests known as "Main Supply Estimates"
to HM Treasury. The government then releases this data
in a large consolidated document entitled "Central
Government Supply Estimates (Budget Year-Following
Year): The Main Supply Estimates" A foremost piece of
the budget speech by the chancellor of the Exchequer is
deal with forecasts of employment, prices, and the
balance of payments, collectively with a discussion of
fiscal and monetary policies.
In this reference, the study considered stock market
indices; BSE Sensex, NYSE DJIA and FTSE 100 and
then draws some analytical inferences by using statistical
measures. The rest paper is divided in different parts viz.,
Literature Review, Research Methodology, Empirical
Analysis and Conclusion
2. LITERATURE REVIEW
There are some of the reviews of the studies which have
been previously undertaken in the related area of research
and also enlightened the thought of prospective
researcher.
Pranav Saraswat (2012) examined the impact of union
budgets from 1995 to 2010 on the stock market in terms
of volatility of market. Gurcharan Singh & Salony Kansal
(2010) examined the impact of Budget on stock market
by taking S & P CNX Nifty for the study period 1996 to
2009, segregated in to short term, medium term and long
term periods. The results suggested that the budget have
maximum impact on market trend in short term. Arindam
Gupta, Debashish Kundu (2006) observed the impact in
terms of volatility and returns. Budget exerts the
maximum impact in terms of absolute returns
immediately on and around (pre - post) budget day.
Mohanty (2004) examined the stock prices reaction to
announcement of various policies. Results reflected that
stock usually reacted towards the public news quickly.
Susan Thomas (2002) explored the inter play between
budget and market trend by seeking the extent to which
the stock market response to union budget. Rao (1997)
studied the impact of some macroeconomic events
including budgets and credit policy of Government as
they can increase the volatility of stock prices of market
portfolios.
3. RESEARCH OBJECTIVE
The study has been conducted with the view:
To examine the behaviour of various stock markets
due to the announcement of Government budget.
4. RESEARCH METHODOLOGY
Sources of Data: For the purpose of the study, three
countries stock exchanges viz., Bombay Stock Exchange
(India), New York Stock Exchange (USA), London Stock
Exchange (UK) have been considered as a source of basic
stock prices. In this context, stock market indices; BSE
Sensex, DJIA (NYSE) and FTSE100 (UK) have been
taken from authentic sites of stock exchanges viz.
www.bseindia.com, www.nyse.com and
www.londonstockexchange.com.
Duration of Study: For the purpose of analysis of the
data, a period of three year has been taken into
consideration from financial year 2008-09 to 2010-
11.The researchers has considered that period because
during this time most of the factors possessed the impact
on different economies. That was the phase of economic
meltdown and coping up with these circumstances. So in
this way, researcher has tried to find out that how
government policies affect the investors behavior and
market trend.
Tools and Techniques Used: The researcher has been
used the Paired t Test and F test. Paired t test is a way to
test for comparing two related samples, involving small
values of n that does not require the variances of the two
populations to be equal, but the assumption that the two
populations are normal must continue to apply. Such a
test is generally considered appropriate in a before and
after treatment study. In this difference score and average
of differences for each matched pair have been find out.
Paired t test applied for judging the significance of mean
of difference and work out the test statistic t as follows:

/

Where,

= Mean of differences
= Standard deviation of differences
F Test: To test the equality of variances of two normal
populations F test is used which is based on F
distribution. In this null hypothesis (Ho) would be framed
as the variances of two normal populations are same. The
main object is to test the hypothesis whether the two
samples are from the same normal population with equal
variance. This test initially used to verify the hypothesis
of equality between two variances and also in the context
of analysis of variance. F statistic found as stated below:
F =

In this if the calculated value is greater than F table value
at a certain level of significance (5%, 1%) of degree of
freedom (n-1) then the test regarded as significant and
rejecting the null hypothesis on a significant ground.
5. HYPOTHESIS
H
0
1: There is no significant impact of Budget
Kirti Khanna and Neeraj Gogia VSRDIJBMR, Vol. IV (II) February 2014 / 37

announcements on Stock prices.
H
0
2: There is no change in the variance for both periods;
Long term before and long term after.
6. EMPIRICAL ANALYSIS & DISCUSSION
For the purpose of analysis, researcher has considered the
average daily returns of stock market on short term,
medium term and long term basis. Those three time
periods are defined as 3 days (short term), 15 days
(medium term) and 30 days (long term) by pre and post
budget announcement day. In this study, data regarding
the stock market benchmarks have been gathered from
the respective websites of stock exchanges (BSE, NYSE
& LSE); and the dates of budget presentations taken from
the website of ministry of Finance (India), Office of
management & Budget (USA Govt.) and HM Treasury
(UK Finance & Economic Ministry). During the study
period, only the trading days has been taken into
consideration and other days (holidays) have been
excluded.
The hypothesis is tested for three time gaps; short term (3
days), medium term (15 days) and long term (30 days) by
applying paired t test on pre and post data. In study, B1,
B2, B3 termed as average daily returns during the pre 3,
15 and 30 days whereas A1, A2, A3 represents the
average daily returns during the post 3, 15 and 30 days.
To fulfill the objective of study, researcher tests the pre-
formed null hypothesis. For this, the study applied the
paired t test in the two sample data of average daily
returns pre announcement of budget and average daily
returns post announcement of budget for selected
countries markets; Bombay Stock Exchange, New York
Stock Exchange and London Stock Exchange. Table 1
shows the result specification of test for the first
hypothesis
.
Table 1: Results Specification (Paired t Test)
Markets Values at significance level = 5%
India (BSE)

n = 5, df = 4
Pairs A1- B1 A2- B2 A3- B3
Table Value 3.182 3.182 3.182
Actual Value 5.056** 4.928** 1.082
P Value 0.015 0.016 0.359
USA (NYSE)

n = 4, df = 3
Table Value 4.303 4.303 4.303
Actual Value 1.127 5.079** 5.753**
P Value 0.377 0.037 0.029
UK (LSE)

n = 5, df = 4
Table Value 3.182 3.182 3.182
Actual Value 7.477** 3.477** 2.631
P Value 0.005 0.04 0.078
** Ho rejected at 5% level of significance (two tailed)

These results show that in Indian scenario, the budget
announcements have significant impact on the stock
market in short term and medium term. Actual value is
more than table value of t test, which leads to reject the
null hypothesis on 5% level of significance (0.05); as
there is a significant impact of Union Budget on market.
But in case of long term period (30 days pre and post) not
any significant impact is seen by researcher. In this case,
table value is more than actual value; hence, researcher
has accepted the null hypothesis (H
0
).
In case of USA, results show that the budget
announcements have significant impact on the stock
market in long term and medium term. Actual value is
more than table value of t test, which leads to reject the
null hypothesis on 5% level of significance (0.05); as
there is a significant impact of Union Budget on market.
But in case of short term period (3days pre and post) not
any significant impact is seen by researcher. In this case,
table value is more than actual value; hence, researcher
has accepted the null hypothesis (H
0
).
In UK vista, findings reflect that the budget
announcements have significant impact on the stock
market in short term as well as medium term. Actual
value is more than table value of t test, which leads to
reject the null hypothesis on 5% level of significance
(0.05); as there is a significant impact of Budget on
market. But in case of long term period (30 days pre and
post) not any significant impact is seen by researcher. In
this case, table value is more than actual value; hence,
researcher has accepted the null hypothesis (H0) at 5%
level of significance.
Table 2 shows the result specification of test for the
second hypothesis.
Table 2 (a): Results Specification (Variance)
INDIA: Table shows the result of test. After analyzing
the data regarding variances, study shows that the null
hypothesis is accepted for all the sets at 5% significance
level. Table values of f test are more than the calculated
value of f test. Variance during the long term post
announcement budget is not more than variance during
pre-budget period. In long term period of both sides,
volatility of market is not so high in term of variance.
Years Actual V Table V
2009 (Int.) 1.27 1.86
2009 1.68 1.86
2010 1.54 1.86
2011 1.43 1.86
Kirti Khanna and Neeraj Gogia VSRDIJBMR, Vol. IV (II) February 2014 / 38

Table 2 (b): Results Specification (Variance)
USA: After analyzing the data regarding variances, study
shows that the null hypothesis is rejected for 2 cases of
the set at 5% significance level. Table values of f test are
less than the calculated value of f test. Variance during
the long term pre announcement budget is not more than
variance during after budget period. So, in USA, long
term after budget period tends to be more volatile than
the pre-budget long term period; as two cases out of the
three are significant.
Table 2 (c): Results Specification (Variance)
UK: After analyzing the data regarding variances, study
shows that the null hypothesis is accepted for all the sets
at 5% significance level. Table values of F test are more
than the calculated values of F test expect only one case
(2010 emergency). So, the researcher has drawn the
inference that variance during the long term post
announcement budget is not more than variance during
pre-budget period. In long term period of both sides,
volatility of market is not so high in term of variance.
7. CONCLUSION
The Government Budget announcement is one of the
important factors as it is related to the financial or
economic health of country involving all the industries. In
case of Indian scenario, 5 budgets have been announced
during the time period of four financial years. The study
reveals that in India, the union budget mainly affects the
stock market in short term mainly and medium term also.
But in long term those budgets have not any significant
impact on stock market trend as investors are adjusted
with the announcements.
In case of USA, four Federal budgets have been presented
by President. The study reveals that in USA, the budget
mainly affects the stock market in long term and medium
term. The main reason of this type of impact was that the
budget process takes much time in USA. After the
decision and approval of Congress, budget proposals
came into effect for the next year. During this long time
period, different views given by market analysts,
investors has fluctuate the market in the situation of
assumptions and hopes.
In case of UK, five budgets have been announced by
Chancellor. The study reveals that in UK, budget mainly
affects the stock market in short term mainly and medium
term also. But in long term those budgets have not any
significant impact on stock market trend. The anxiety
about the Budget announcement of Government remains
high during the period close to the Budget Day.
8. REFERENCES
[1] Saraswat, P. (2012). Volatility of Sensex with respect to
Union Budget of India. International Journal of Accounting
and Financial Management Research (IJAFMR), Vol. 2,
No. 1, March, 2012, pp. 19-31
[2] Singh, G. and Kansal, S. (2010), Impact of union budget on
Indian stock market a case study of NSE. Asia pacific
journal of social sciences, ISSN 0975 5942, Vol. II (1),
Jan June, 2010, pp 148-160
[3] Gupta, A. and Kundu, D. (2006). A Study on the Impact of
Union Budgets on Stock Prices in India. The ICFAI
Journal of Applied Finance, Vol. 12, No. 10, pp. 65-76,
October 2006.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=108600
5
[4] Mohanty, M. (2004). Stock Market reaction to
announcement of policy changes. The ICFAI, Journal of
Applied Finance, Dec. 2004
[5] Thomas, S. and Shah, A. (2002). The stock market
response to the Union Budget. Economic and Political
Weekly, Volume XXXVII, Number 5, February 28, 2002,
page 455458.
[6] Rao (1997). Impact of Macroeconomic events on stock
price behaviour. Management and Accounting Research,
Vol.1, No.1, pp. 46-67.
Website
[7] www.bseindia.com
[8] www.nyse.com
[9] www.londonstockexchange.com
[10] http://www.whitehouse.gov/omb/budget
[11] http://www.hm-treasury.gov.uk/budget.htm
[12] Peston, R. (2010, June 22). Article on Budget: Private
sector likely to applaud. In BBC News: Retrieved from
[13] http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010
/06/private_sector_likely_to_appla.html

Years Actual V Table V
2009 14.23** 1.86
2010 1.14 1.86
2011 4.06** 1.86
Years Actual V Table V
2009 1.67 1.86
2010 3.00** 1.86
2010 (Emergency) 1.10 1.86
2011 1.71 1.86