The Relation Between Investor Uncertainty and Market Reactions to Earnings Announcements: Evidence from the Property‐Casualty Insurance Industry in the USA

Theodore E. Christensen, Jennifer J. Gaver and Pamela S. Stuerke

Journal of Business Finance & Accounting, 2005, vol. 32, issue 1‐2, 1-29

Abstract: Abstract: This paper investigates the relationship between investor uncertainty, gauged by properties of analysts’ forecasts, and the stock market response to earnings. We find that uncertainty is best characterized by a comprehensive measure recently proposed by Barron, Kim, Lim and Stevens (1998), BKLS. The BKLS measure is related to uncertainty‐inducing events, as well as factors that affect the difficulty faced by analysts in forecasting earnings. We conclude that, first, pre‐disclosure uncertainty is a significant determinant of the price reaction to the earnings release, and second, BKLS is a more comprehensive measure of uncertainty than simple dispersion.

Date: 2005
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