The 2000 presidential election and the information cost of sensitive versus non-sensitive S&P 500 stocks

Yan He; Hai Lin; Chunchi Wu; Uric B. Dufrene

doi:10.1016/j.finmar.2008.04.004

The 2000 presidential election and the information cost of sensitive versus non-sensitive S&P 500 stocks

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

Finance

Indiana University Southeast
Xiamen University

Research output: Contribution to journal › Article › peer-review

17 Scopus citations

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 creates a significant increase in the adverse selection component of the 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.

Original language	English
Pages (from-to)	54-86
Number of pages	33
Journal	Journal of Financial Markets
Volume	12
Issue number	1
DOIs	https://doi.org/10.1016/j.finmar.2008.04.004
State	Published - Feb 2009

Keywords

Adverse selection cost
Bid-ask spreads
Information asymmetry
Presidential election
Transaction costs

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10.1016/j.finmar.2008.04.004

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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 creates a significant increase in the adverse selection component of the 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.",

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KW - Information asymmetry

KW - Presidential election

KW - Transaction costs

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The 2000 presidential election and the information cost of sensitive versus non-sensitive S&P 500 stocks

Abstract

Keywords

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