Abstract:
The study examines the behavior of stock returns and volatility in Diversified Holdings (DIV) sector of CSE around three annual government budget announcements. The daily returns of the sector over a period of three years from 1st April 2015 to 29th March 2018 are tested using three types of conditional time varying models, namely GARCH, EGARCH and GJR-GARCH. Three cases are considered using the dummy variable for =5, 10 and 15 with three scenarios, number of days on pre- budget, pre and post budget, post- budget for each case. Seven models are fitted except pre-budget with n=10 and pre-budget with n=15. This study finds strong evidence for the presence of budget announcement effect in stock returns and volatility of the sector. Returns during all considered windows are significantly negative and it implies that significant reduction in return. This reduction is increasing when getting closer to the budget date. Due to this effect investors can earn an abnormal return by buying stocks before five days of the budget announcement or after five days of the budget announcement and selling stocks after 15 days from the budget date.
