| This dissertation includes two essays investigating the role of uncertainty in financial markets. The first essay examines whether monetary policy uncertainty influences the reaction of the equity, Treasury security, foreign exchange and crude oil markets, as well as medium-term interest rates, to U.S macroeconomic announcements. The empirical results show that in the presence of higher policy uncertainty the response to macroeconomic news weakens in the stock and crude oil markets and strengthens in the Treasury, interest rate and foreign exchange markets. In times of elevated monetary policy uncertainty, macroeconomic announcements impact the financial and crude oil markets to a large extent through expectations of future monetary policy.;The second essay investigates whether ambiguity is priced in the cross-section of stock returns. The results show that investors require a premium for being exposed to high levels of ambiguity, in addition to the premium they require for bearing risk. As ambiguity increases, small firms, firms that are unprofitable, non-dividend payers, firms that are riskier, and those with higher levels of earnings management, underperform relative to their counterparts. This essay also provides new evidence on how ambiguity affects the price discovery process in the stock market. In particular, during times of elevated ambiguity, firms with greater information asymmetry benefit from a weaker stock market reaction to bad earnings news. |
