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On Fiscal Policy and the Stock Market

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  • Darrat, Ali F

Abstract

This paper provides some empirical evidence on the relationship between aggregate quarterly stock prices and other macro variables, including measures of monetary and fiscal policy in Canada. The results indicate the presence of significant lags in the reaction of stock prices to fiscal policy moves. To the extent that a proxy for the fiscal policy effect on required (expected) return to capital was included in the model, such a finding conflicts with the stock market efficiency hypothesis. Further tests also suggest that anticipated and unanticipated fiscal policy changes have significant lagged relationships with current stock prices. The Canadian stock market, therefore, appears to have been inefficient with respect to available information on fiscal policy. Copyright 1988 by Ohio State University Press.

Suggested Citation

  • Darrat, Ali F, 1988. "On Fiscal Policy and the Stock Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 353-363, August.
    • Handle: RePEc:mcb:jmoncb:v:20:y:1988:i:3:p:353-63
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