Asymmetric Investor Reaction around Earnings Benchmark under Economic Uncertainty

Abstract

AbstractThis study examines the effect of macro‐economic shocks on asymmetric investor reactions to earnings announcements. Specifically, we focus on a small range around the earnings benchmark and find a disproportionately large market penalty for firms with small negative earnings surprises (ESs) following an increase in macro‐uncertainty. By contrast, we find no evidence of an asymmetric market reaction to firms with small negative ESs following a decrease in macro‐uncertainty. While prior empirical research failed to document the large penalty for small negative ESs, our findings suggest macro‐economic shocks as a factor that explains the asymmetric pricing effect.