Ambiguity Aversion, Company Size and the Pricing of Earnings Forecasts

19 Pages Posted: 18 Jun 2014

See all articles by Constantinos Antoniou

Constantinos Antoniou

University of Warwick - Warwick Business School

Emilios C. Galariotis

Audencia Business School ; Audencia Nantes School of Management

Daniel Read

University of Warwick - Warwick Business School

Date Written: June 2014

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 hypothesise 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

Suggested Citation

Antoniou, Constantinos and Galariotis, Emilios C. and Read, Daniel, Ambiguity Aversion, Company Size and the Pricing of Earnings Forecasts (June 2014). European Financial Management, Vol. 20, Issue 3, pp. 633-651, 2014, Available at SSRN: https://ssrn.com/abstract=2456041 or http://dx.doi.org/10.1111/j.1468-036X.2012.00651.x

Constantinos Antoniou (Contact Author)

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/

Daniel Read

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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