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An empirical analysis of changes of the impact of federal budget deficits on stock market returns: evidence from the US economy

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  • Klaus Grobys

Abstract

We investigate the causality between the real federal budget deficit returns and real stock market returns for the US economy. We divide the overall sample into two sub-samples running from 1968:1 to 1988:3 and from 1988:4 to 2011:3. In contrast to earlier studies, we find a significant positive relationship between real stock market returns and real federal budget deficit returns for both samples. Moreover, we find that the stochastic interrelations between these variables have considerably changed over time.

Suggested Citation

  • Klaus Grobys, 2013. "An empirical analysis of changes of the impact of federal budget deficits on stock market returns: evidence from the US economy," Applied Economics Letters, Taylor & Francis Journals, vol. 20(9), pages 921-924, June.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:9:p:921-924
    DOI: 10.1080/13504851.2013.765534
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    References listed on IDEAS

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    1. Darrat, Ali F & Brocato, Joe, 1994. "Stock Market Efficiency and the Federal Budget Deficit: Another Anomaly?," The Financial Review, Eastern Finance Association, vol. 29(1), pages 49-75, February.
    2. Bradley Ewing, 1998. "The impact of federal budget deficits on movements in the stock market: evidence from Australia and France," Applied Economics Letters, Taylor & Francis Journals, vol. 5(10), pages 649-651.
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