Asymmetric Responses to Good and Bad News: An Empirical Case for Ambiguity
Christopher D. Williams
University of Michigan - Stephen M. Ross School of Business
September 8, 2009
I empirically examine the role of ambiguity in shaping the responses of stock market participants to firm-specific information releases. I build on recent ideas in Epstein and Schneider (2008) and Hansen and Sargent (2008) who hypothesizes that investors respond differentially to good versus bad news information releases when confronted with ambiguity. Using changes in VIX to capture changes in ambiguity, I document that following increases (decreases) in VIX investors respond asymmetrically (symmetrically), weighting bad earnings news more than (the same as) good earnings news. This study provides large sample, empirical evidence that ambiguity shocks change how market participants process information.
Number of Pages in PDF File: 47
Keywords: ambiguity, risk, capital markets, earnings, asymmetric
JEL Classification: D81, D82, G10, M40working papers series
Date posted: September 9, 2009
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