Earnings Guidance and Market Uncertainty

54 Pages Posted: 28 Apr 2008 Last revised: 14 Sep 2011

Jonathan L. Rogers

University of Colorado at Boulder - Leeds School of Business

Douglas J. Skinner

The University of Chicago - Booth School of Business

Andrew Van Buskirk

Ohio State University (OSU) - Department of Accounting & Management Information Systems

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

Rogers, Jonathan L. and Skinner, Douglas J. and Van Buskirk, Andrew, Earnings Guidance and Market Uncertainty (August 17, 2009). Chicago Booth Research Paper No. 09-17; Journal of Accounting & Economics (JAE), Vol. 48, No. 1, pp.90-109, 2009. Available at SSRN: https://ssrn.com/abstract=1126405

Jonathan L. Rogers

University of Colorado at Boulder - Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

Douglas J. Skinner

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

Andrew Van Buskirk (Contact Author)

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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