Stock Market Reaction to Union Budget Announcements: An Event Study

Abstract

Union Budget plays particularly key role in shaping India's economic environment because it presents government's plans related to taxation, public spending, and overall fiscal policy. These announcements strongly influence investor expectations and often lead to noticeable movements in stock market. This study aims to understand how Indian stock market reacts to Union Budget announcements by using Event Study Methodology. Daily stock market data were collected for selected time periods before and after budget announcement dates. analysis was carried out using estimation and event windows to measure market behaviour accurately. Market Model (Regression Approach) was applied to estimate expected returns by regressing index returns on market returns during estimation window. Abnormal returns were then calculated as difference between actual and model-estimated returns, while cumulative abnormal returns (CAR) were used to evaluate market's reaction to budget-related information. results show that stock market experiences increased volatility and significant price movements around budget announcement day. These changes reflect how investors interpret policy decisions and adjust their investment strategies accordingly. findings also indicate that Indian stock market responds quickly to publicly available information, which supports semi-strong form of market efficiency. Overall, study provides useful insights into investor behaviour and demonstrates strong impact of major government policy announcements on stock market performance.