The 2000 presidential election and the information cost of sensitive versus

Yan He, Hai Lin, Chunchi Wu and Uric B. Dufrene

No 2013-10-14, Working Papers from Wang Yanan Institute for Studies in Economics (WISE), Xiamen University

Abstract: We investigate the information cost of stock trading during the 2000 presidential election. We find that the uncertainty of the election induces information asymmetry of politically sensitive firms under the Bush/Gore platforms. The unusual delay in election results in a significant increase in the adverse selection component of trading cost of politically sensitive stocks. Cross-sectional variations in bid-ask spreads are significantly and positively related to changes in information cost, controlling for the effects of liquidity cost and stock characteristics. This empirical evidence is robust to different estimation methods.

Keywords: Presidential election; information asymmetry; transaction costs; bid-ask spreads; adverse selection cost (search for similar items in EconPapers)
JEL-codes: G0 G14 (search for similar items in EconPapers)
Date: 2013-10-14
New Economics Papers: this item is included in nep-cdm, nep-cta and nep-mst
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