The Impact of Government Budget Announcements on the Financial Market: The Case of Saudi Arabia

Abstract

This event study examines the impact of government budget announcements on the Saudi stock market (TASI) from 2017 to 2023. Daily closing prices of the TASI index and dates of budget announcements are analyzed. The findings reveal that announcements elicited varied responses. The 2017 announcement of a budget deficit led to negative abnormal returns, reflecting investor concern, while the 2019 announcement of a surplus generated positive abnormal returns, indicating market optimism. The 2020 announcement, amidst the COVID-19 pandemic, also resulted in positive abnormal returns, suggesting market confidence in the government's economic management. Subsequent announcements in 2021 and 2022, with a minor deficit and a surplus respectively, showed mixed reactions, highlighting the complex interplay of factors influencing investor behavior. The 2021 budget announcement, despite a minor deficit, did not lead to significant negative returns, possibly due to other economic factors overshadowing the deficit's impact. Similarly, the 2022 surplus announcement did not yield substantial positive returns, suggesting that investors might have already factored in the expected surplus or were influenced by other market conditions. The 2023 announcement, with a balanced or small surplus budget, resulted in a relatively stable market reaction, indicating a more measured investor confidence over time. Overall, this research suggests that while the Saudi stock market efficiently incorporates budget information, investor reactions are diverse and depend on various economic factors along with budget status. This study provides valuable insights for policymakers and investors in Saudi Arabia, emphasizing the need to consider the economic context when interpreting market responses to budget announcements.

Keywords: Event Study, Budget Announcements, TASI, Stock Market, Saudi Arabia, Fiscal Policy, Investor Behavior