Asymmetric Responses to Good and Bad News: An Empirical Case for Ambiguity

Williams, Christopher

doi:10.2139/ssrn.1470085

Abstract

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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

Abstract:
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, M40

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Date posted: September 9, 2009

Suggested Citation

Williams, Christopher D., Asymmetric Responses to Good and Bad News: An Empirical Case for Ambiguity (September 8, 2009). Available at SSRN: http://ssrn.com/abstract=1470085 or http://dx.doi.org/10.2139/ssrn.1470085

Contact Information

Christopher D. Williams (Contact Author)

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
(734)647-2842 (Phone)