Economic Policy Uncertainty and Information Asymmetry
51 Pages Posted: 22 Sep 2016 Last revised: 9 Nov 2017
Date Written: November 2, 2017
This study examines whether economic policy uncertainty exacerbates information asymmetry among investors. We find that increased economic policy uncertainty is associated with decreased stock liquidity, especially for firms more exposed to economic policy uncertainty. Increased economic policy uncertainty also lowers investors' reaction to earnings for firms with high liquidity risk. Managers in turn increase voluntary disclosure, which only partly reverses the liquidity drop. These results suggest that information asymmetry is an important channel through which economic policy uncertainty affects asset pricing.
Keywords: Corporate Disclosure; Information Asymmetry; Economic Policy Uncertainty; Stock Liquidity
JEL Classification: D80, E61, E65, G12, G14, G18, L50
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