Earnings volatility, ambiguity, and crisis-period stock returns

abstract

• 2018 Accounting and Finance Association of Australia and New Zealand Financial crises are marked by substantial increases in ambiguity where prices appear to decouple from fundamentals. Consistent with ambiguity-based asset pricing theories, we find that ambiguity concerns are more severe for firms with higher earnings volatility, causing investors to demand a higher ambiguity premium for such firms. While there is no relation between earnings volatility and stock returns under normal conditions, there is a significant negative relation between crisis-period stock returns and prior earnings volatility. The effect is stronger in firms with low institutional ownership and low analyst following, consistent with ambiguity concerns being greatest amongst firms with unsophisticated investors.

authors

• Ahmed, Anwer

published proceedings

• ACCOUNTING AND FINANCE

altmetric score

• 1.35

author list (cited authors)

• Ahmed, A. S., McMartin, A. S., & Safdar, I.

citation count

• 6

complete list of authors

• Ahmed, Anwer S||McMartin, Andrew S||Safdar, Irfan

publication date

• September 2020

publisher

• Wiley  Publisher

published in

• Accounting and Finance  Journal

keywords

• Ambiguity
• Earnings Volatility
• Financial Crisis
• Stock Returns

Digital Object Identifier (DOI)

• 10.1111/acfi.12420

start page

• 2939

end page

• 2963

volume

• 60

issue

• 3

URL

• http://dx.doi.org/10.1111/acfi.12420