Economic Uncertainty and Investor Attention
38 Pages Posted: 4 Mar 2018 Last revised: 31 Jul 2019
Date Written: July 30, 2019
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
Suggested Citation: Suggested Citation