Ambiguity Aversion, Company Size and the Pricing of Earnings Forecasts

25 Pages Posted: 2 Nov 2009 Last revised: 23 Dec 2019

See all articles by Constantinos Antoniou

Constantinos Antoniou

University of Warwick - Warwick Business School

Daniel Read

University of Warwick - Warwick Business School

Emilios C. Galariotis

Audencia Business School ; Audencia Nantes School of Management

Date Written: November 1, 2010

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 hypothesize 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.

Keywords: Ambiguity aversion, size premium, analyst earnings forecasts.

JEL Classification: D03, D81, D84, G11, G14

Suggested Citation

Antoniou, Constantinos and Read, Daniel and Galariotis, Emilios C., Ambiguity Aversion, Company Size and the Pricing of Earnings Forecasts (November 1, 2010). WBS Finance Group Research Paper No. 131, Available at SSRN: https://ssrn.com/abstract=1496909 or http://dx.doi.org/10.2139/ssrn.1496909

Constantinos Antoniou (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Daniel Read

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Emilios C. Galariotis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

HOME PAGE: http://faculte-recherche.audencia.com/en/faculty/faculty-member-cvs/emilios-galariotis/

Audencia Nantes School of Management ( email )

France

HOME PAGE: http://faculte-recherche.audencia.com/en/faculty/faculty-member-cvs/emilios-galariotis/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
260
Abstract Views
1,617
rank
148,702
PlumX Metrics