Market Liquidity and the U.S. Government Shutdown of 2013

51 Pages Posted: 22 Sep 2016 Last revised: 13 Oct 2016

Ryan T. Ball

The Stephen M. Ross School of Business at the University of Michigan

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Jordan Schoenfeld

University of Utah

Date Written: September 20, 2016

Abstract

This study measures the effect of U.S. Federal Government policy uncertainty on U.S. financial market liquidity. From October 1 to 16, 2013, the Government shut down. We argue that the onset and duration of the shutdown were uncertain, and view the shutdown as a liquidity-unrelated shock that increased Government policy uncertainty. During the shutdown, liquidity and price efficiency of U.S. firms significantly deteriorated relative to a control period and to control samples of foreign firms and firms with international exposure. Our results build on recent studies that argue that Government policy uncertainty has a substantial impact on financial markets.

Keywords: Policy Uncertainty, Stock Liquidity, U.S. Government

JEL Classification: G12, G14, E61, E65

Suggested Citation

Ball, Ryan T. and Nagar, Venky and Schoenfeld, Jordan, Market Liquidity and the U.S. Government Shutdown of 2013 (September 20, 2016). Ross School of Business Paper No. 1333. Available at SSRN: https://ssrn.com/abstract=2841442 or http://dx.doi.org/10.2139/ssrn.2841442

Ryan T. Ball

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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

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