When is Bad News Really Bad News?

37 Pages Posted: 21 Jul 1999

See all articles by Jennifer S. Conrad

Jennifer S. Conrad

University of North Carolina Kenan-Flagler Business School

Bradford Cornell

Anderson Graduate School of Management, UCLA

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Multiple version iconThere are 3 versions of this paper

Date Written: June 1999

Abstract

We provide evidence that the asymmetrical price reaction to bad news at earnings announcements is most pronounced when overall market price-earnings ratios are high. This finding is consistent with both unwarranted investor optimism and investor uncertainty. However, evidence also indicates that the difference between earnings responses to good and bad news exhibit a U-shape in the level of the market, which is consistent with Veronesi's (1999) model of investor uncertainty. However, the response to both good and bad news increases at low market levels. Although this is inconsistent with Veronesi (1999), it may be attributable to the leverage effect discussed in Black (1976).

JEL Classification: G12, G14, M41

Suggested Citation

Conrad, Jennifer S. and Cornell, Bradford and Landsman, Wayne R., When is Bad News Really Bad News? (June 1999). Available at SSRN: https://ssrn.com/abstract=167888 or http://dx.doi.org/10.2139/ssrn.167888

Jennifer S. Conrad (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Bradford Cornell

Anderson Graduate School of Management, UCLA ( email )

Pasadena, CA 91125
United States
626 833-9978 (Phone)

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

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