Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167790
Authors: 
Joshi, Pooja
Giri, Arun Kumar
Year of Publication: 
2015
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Volume:] 3 [Year:] 2015 [Issue:] 3 [Pages:] 393-410
Abstract: 
The study aims at examining how fiscal deficits affect the performance of the stock market in India by using annual data from 1988-2012. The study makes use of Ng-Perron unit root tests to check the non-stationarity property of the series; the Auto Regressive Distributed Lag (ARDL) bounds test and a Vector Error Correction Model (VECM) for testing both short and long run dynamic relationships. The variance decomposition (VDC) is used to predict the exogenous shocks of the variables. The findings of the bounds test reveal that the estimated equation and the series are co-integrated. The ARDL results suggest a long run negative relationship exists between budget deficit and stock prices and do not show any significant relationship in the short run. The VECM result shows that fiscal deficits influence the stock price only in the short run. The results of the Variance Decomposition show that stock price movement in the long run is mostly explained by shocks of fiscal deficits. The study implies that the government must adopt appropriate macroeconomic policies to reduce budget deficit, which will result in stock market growth and in turn will lead to the financial development of the country.
Subjects: 
stock price
fiscal deficit
ARDL
VECM
VDC
India
JEL: 
H62
H68
G10
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

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