If the government introduced a policy that was able to reduce the future uncertainty in the...

If the government introduced a policy that was able to reduce the future uncertainty in the stock market by requiring more transparency in accounting principles, what effect would this have on stock prices today? How is this related to the asymmetric volatility effect?

Expert Solution

If the government introduced a policy that was able to reduce the future uncertainty in the stock market by requiring more transparency in accounting principles,It will have positive impact on the overall stock prices as shareholders will treat as it as a highly effective signal that the government is poised for the bettermen of the shareholders and they are introducing measures which will protect the interest of the shareholders and this will eventually lead into pumping in excess money by the shareholders as they believe it to be a transparent system and this will fuel the overall stock prices on the upside as fresh money are being injected and liquidity is also going up.This will also mean that the share prices will be less volatile as the uncertainity is going lower .

Asymmetric volatility means that volatility is higher in poorly performing markets than strongly performing markets so asymmetric volatility will be lower after introduction of such measures by government which curbs uncertainity in the market and it also means a stable market.

jeff jeffy answered 2 years ago

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If the government introduced a policy that was able to reduce the future uncertainty in the...

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