Economic Uncertainty and Investor Attention

Abstract

In a dynamic model of information acquisition, we show that higher economic uncertainty causes investors to rationally allocate more attention to firm-specific information. Higher uncertainty weakens the informativeness of stock prices, which increases investors' incentive to search for information. The model yields clear testable predictions that we take to the data. We show that corporate earnings announced on days with higher economic uncertainty are associated with larger increases in SEC EDGAR queries, stronger earnings response coefficients, and weaker post-earnings announcement drift. These findings suggest that economic uncertainty attracts investor attention to firm-specific information and improves price discovery around earnings announcements.

Keywords: Investor attention; Economic uncertainty; Firm-specific news; Earnings announcements

JEL Classification: G14; G41; M41