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Ambiguity and stock price crash risk: Evidence from China

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  • Li, Yinan
  • Liu, Qiang
  • Guo, Shuxin

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.

Suggested Citation

  • Li, Yinan & Liu, Qiang & Guo, Shuxin, 2025. "Ambiguity and stock price crash risk: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:ecofin:v:79:y:2025:i:c:s1062940825000981
    DOI: 10.1016/j.najef.2025.102458
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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