Earnings Guidance and Market Uncertainty
Chicago Booth Research Paper No. 09-17
Journal of Accounting & Economics (JAE), Vol. 48, No. 1, pp.90-109, 2009
54 Pages Posted: 28 Apr 2008 Last revised: 14 Sep 2011
Date Written: August 17, 2009
Abstract
We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts, on average, increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically (as opposed to on a routine basis). In the longer run, market uncertainty declines after earnings are announced regardless of whether there is a preceding earnings forecast. This decline is mitigated when the firm issues a forecast that conveys negative news.
JEL Classification: D8, G14, M4
Suggested Citation: Suggested Citation
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