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Economic Policy Uncertainty and Information Asymmetry

51 Pages Posted: 22 Sep 2016 Last revised: 9 Nov 2017

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Jordan Schoenfeld

University of Utah

Laura Wellman

University of Utah - David Eccles School of Business

Date Written: November 2, 2017

Abstract

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

Suggested Citation

Nagar, Venky and Schoenfeld, Jordan and Wellman, Laura, Economic Policy Uncertainty and Information Asymmetry (November 2, 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

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Jordan Schoenfeld (Contact Author)

University of Utah ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States

Laura Wellman

University of Utah - David Eccles School of Business ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States

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