Managerial sentiment, macroeconomic uncertainty, and stock liquidity: Evidence from India

Abstract

This study examines how managerial sentiment shapes the relationship between macroeconomic uncertainty and stock liquidity. Using a FinBERT-based large language model to assess sentiment from management discussion and analysis (MD&A) disclosures and a customized macroeconomic uncertainty index for India, we find that increased uncertainty significantly reduces stock liquidity. Optimistic managerial sentiment alleviates this adverse effect, particularly in firms with higher information asymmetry. The results are robust to the endogeneity test, propensity score matching, and alternative sentiment and uncertainty measures. This study advances macroeconomic uncertainty research by being the first to explore how managerial sentiment moderates its deterrent effects on stock liquidity.