48 Pages Posted: 22 Sep 2016 Last revised: 19 Sep 2017
Date Written: September 18, 2017
This study examines whether economic policy uncertainty (EPU) exacerbates information asymmetry among investors. We find that increased EPU is associated with decreased stock liquidity, especially for firms more exposed to EPU. Increased EPU also lowers investors' reaction to earnings for firms with high liquidity risk. Management's voluntary disclosure only partly reverses the liquidity drop associated with increased EPU. These results suggest that information asymmetry is an important channel through which EPU affects asset pricing.
Keywords: Corporate Disclosure; Information Asymmetry; Policy Uncertainty; Stock Liquidity
JEL Classification: G12, G14, E61, E65
Suggested Citation: Suggested Citation
Nagar, Venky and Schoenfeld, Jordan and Wellman, Laura, Information Asymmetry and Economic Policy Uncertainty (September 18, 2017). Ross School of Business Paper No. 1333. Available at SSRN: https://ssrn.com/abstract=2841442 or http://dx.doi.org/10.2139/ssrn.2841442