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Ambiguity aversion, company size and the pricing of earnings forecasts
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Antoniou, Constantinos, Galariotis, Emilios and Read, Daniel (2014) Ambiguity aversion, company size and the pricing of earnings forecasts. European Financial Management, 20 (3). pp. 633-651. doi:10.1111/j.1468-036X.2012.00651.x ISSN 1354-7798.
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Official URL: http://dx.doi.org/10.1111/j.1468-036X.2012.00651.x
Abstract
Several authors have reported an unconditional size effect in returns around earnings announcements. In this study we show how this finding can be understood as resulting from ambiguity aversion. We hypothesise that analyst forecasts for smaller companies are relatively more ambiguous; hence they are priced pessimistically by ambiguity-averse investors. As the quarter comes to a close and ambiguity gradually subsides, the stock prices of smaller companies rise to correct this pessimism, creating the size effect. Our results support these hypotheses.
| Item Type: | Journal Article | ||||||
|---|---|---|---|---|---|---|---|
| Divisions: | Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | European Financial Management | ||||||
| Publisher: | Wiley-Blackwell Publishing Ltd. | ||||||
| ISSN: | 1354-7798 | ||||||
| Official Date: | June 2014 | ||||||
| Dates: |
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| Volume: | 20 | ||||||
| Number: | 3 | ||||||
| Page Range: | pp. 633-651 | ||||||
| DOI: | 10.1111/j.1468-036X.2012.00651.x | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Access rights to Published version: | Restricted or Subscription Access |
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