Impact of Government Budget Announcement on Stock Market Sector Indices: Evidence from Colombo Stock Exchange

This study attempts to investigate the impact of Sri Lankan government budget announcements on five sector indexes of Colombo Stock Exchange, namely banks, finance & insurance; beverage, food & tobacco; manufacturing; motor; diversified holdings. The Event study methodology was used to analyze sector wise stock price behavior during the sample period of 2002 to 2013. Results revealed that although the overall trend of the average returns of each sector around budget announcements are same the magnitude of the reaction is different from sector to sector. Motor was the mostaffected sector and diversified holdings sector was the least affected.