Corpus ID: 204779675

The Unexpected Positive Impact : Policy Uncertainty and Stock Price Crash Risk

@inproceedings{Xi2018TheUP,
  title={The Unexpected Positive Impact : Policy Uncertainty and Stock Price Crash Risk},
  author={Yaoyi Xi},
  year={2018}
}
We document that policy uncertainty reduces stock price crash risk. We show that policy uncertainty encourages trading from pessimistic investors. Our finding is consistent with the information blockage model of Cao, Coval and Hirshleifer (2002), which predicts that stock price crash risk is lower when pessimistic investors’ opinions are incorporated in prices. Using both the IV approach and close gubernatorial elections as quasi-natural experiments to address endogeneity concerns, we show… Expand