GOVERNMENT SHUTDOWN: A TEST OF MARKET EFFICIENCY

The purpose of this event study is to test market efficiency theory by analyzing the impact of the government shutdowns of 1995/1996 and 2013 on two samples of 50 firms each. This research tests whether the information embedded in a government shutdown announcement exhibits weak or semi-strong market efficiency. This study tests market efficiency theory by analyzing the impact of two recent US Government shutdowns on the risk adjusted stock price returns of a sample of 100 firms. This study uses the standard risk adjusted event study methodology found in the finance literature. Evidence confirms the significant and consistent negative reaction of the risk adjusted returns for the two samples of government contracting firms up to 30 days prior to the announcements of the 1995 and 2013 government shutdown. Results demonstrate that the announcements of the 1995 and 2013 government shutdown had a significant negative impact on the firm's share price up to 30 days prior to announcement day 0 with a continuous negative trend up to 30 following day 0.