 Wall street watches Washington: Asset pricing implications of policy uncertaintyRalph C. Verhoeks, Willem Verschoor and Remco C.J. Zwinkels Journal of Behavioral and Experimental Finance, 2024, vol. 41, issue C Abstract: We examine the effect of economic policy uncertainty (EPU) on sell-side analysts’ forecasts, the allocation of attention, and the stock market reaction to earnings news. We find that periods of high EPU are associated with higher analyst disagreement and a decrease in forecast accuracy. Specifically, we show that analysts issue on average more pessimistic forecasts when EPU is high. Second, we show that higher levels of EPU are associated with higher attention to the overall stock market and lower firm-level attention, in line with category learning behavior. Forecast errors also have a larger firm-specific component during periods of high EPU. Finally, we show that the trading volume and price responses to earnings announcements hardly depend on EPU. Hence, investors tend to follow analyst forecasts, thereby failing to incorporate a predictable bias. Keywords: Analyst forecasts; Earnings announcements; Economic policy uncertainty; Limited attention (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:41:y:2024:i:c:s2214635023000977 DOI: 10.1016/j.jbef.2023.100883 Access Statistics for this article Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber More articles in Journal of Behavioral and Experimental Finance from Elsevier |
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