Economic Uncertainty and Investor Attention
In a dynamic model of information acquisition, we show that higher economic uncertainty causes investors to rationally allocate more attention to firm-specific information. Higher uncertainty weakens the informativeness of stock prices, which increases investors' incentive to search for information. The model yields clear testable predictions that are supported by the data. We show that corporate earnings announced on days with higher economic uncertainty are associated with stronger earnings response coefficients, weaker post-earnings announcement drifts, and larger increases in SEC EDGAR queries. Overall, these findings suggest that economic uncertainty attracts investor attention to the stock market and improves price discovery.