Ambiguity and stock price crash risk: Evidence from China

Yinan Li, Qiang Liu and Shuxin Guo

The North American Journal of Economics and Finance, 2025, vol. 79, issue C

Abstract: We are the first to investigate the role of ambiguity in explaining stock price crash risk in China. By employing a newly developed measure of ambiguity, we find there is a positive relationship between ambiguity and stock price crash risk, and this result is robust to a battery of tests, even after addressing potential endogeneity issues. Furthermore, we explore the potential impact of the COVID-19 pandemic on our findings by employing a difference-in-difference approach and find an amplification effect of the predictive power of ambiguity on crash risk in the group of stocks with a higher level of ambiguity. Finally, we identify two channels through which ambiguity contributes to stock price crash risk: bad news formation induced by aggressive strategies and bad news hoarding induced by speculative accounting practices.

Keywords: Ambiguity; Stock price crash risk; COVID-19 pandemic; Chinese stock market; Channel analysis (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:79:y:2025:i:c:s1062940825000981

DOI: 10.1016/j.najef.2025.102458

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