Relation between Political Events, Union Budgets and Index Return: Empirical Evidence from the Indian Stock Market

Abstract

This paper examines political events, and union budget effects associated with index NIFTY surrounding its announcement and effective days. The objective of this paper is to test the relationship between political events, and union budget effects with NIFTY index’s return. The study adopted event study methodology and analyzed secondary data collected from 2014-2016 for political events, and from 2011-2016 for analyzed the impact of union budget on Index. All the results of central and state elections (post Modi government) and central union budgets have been taken in this study. Stock market data were obtained from NSE websites, prowess, and money control and yahoo finance, union budget data were obtained from ministry of finance’ website, and results of political election were taken from Election commission of India. Necessary information derived from these sites were summarized and used to compute the relationship with Index return. Empirical results have given unpredictable results. The study found that market response to elections, and union budget are extremely negative or positive depending on the volatility of the election environment. The study, thus recommends that Election result, and union budget are also one of the factors of an investment judgment which has evidenced in this study by the way of directing an event study.