Private information imposes a severe trading disadvantage on uninformed traders while at the same time providing firms with valuable signals for investment adjustment. The two forces have opposite impacts on the cost of capital, and the net effect depends on which force dominates. We show that stocks of firms with low flexibility in investment adjustment (“value firms”) command an information premium, whereas stocks of firms with high flexibility in investment adjustment (“growth firms”) deliver an information discount. These results are consistent with the findings that growth firms exhibit stronger investment sensitivity to information in stock prices than value firms.

Using microlevel panel data and a difference-in-differences identification strategy, we study the effect of political uncertainty on household stock market participation. We find that households significantly reduce their participation and reallocate funds to safer assets during periods of increased political uncertainty prior to gubernatorial elections. The decline in participation is related to households’ response to elevated asset risk and their incentive to hedge increased labor income risk. In situations where uncertainty remains high after elections, pre-election reduction in participation is only partially reversed.