The Effect of Economic Policy Uncertainty on Investor Information Asymmetry and Management Disclosures

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.