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

Stoian, Andreea and Iorgulescu, Filip (2016): Do Investors Listen to Fiscal Policy? – Study case Bucharest Stock Exchange.

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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.

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