When is Bad News Really Bad News?

Posted: 30 Jul 2003

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

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Abstract

We examine whether the price response to bad and good earnings shocks changes as the relative level of the market changes. The study is based on a complete sample of annual earnings announcements during the period 1988 to 1998. The relative level of the market is based on the difference between the current market P/E and the average market P/E over the prior 12 months. We find that the stock price response to negative earnings surprises increases as the relative level of the market rises. Furthermore, the difference between bad news and good news earnings response coefficients rises with the market.

Suggested Citation

Conrad, Jennifer S. and Cornell, Bradford and Landsman, Wayne R., When is Bad News Really Bad News?. Available at SSRN: https://ssrn.com/abstract=369710

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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