We study the role of firm ambiguity on stock price reaction to earnings announcements. By using the firm’s variance risk premium (VRP) prior to earnings news arrivals as a proxy for firm-level information ambiguity, we provide evidence that this “micro” form of ambiguity has a significant positive impact on the earnings announcement market reaction. On average, a unit standard deviation increase in the firm’s VRP is associated with 0.33% increase in the firm’s three-day cumulative abnormal returns. We further show that the firm ambiguity is more influential than the market-level ambiguity in affecting the earnings announcement premium. Finally, consistent with predictions of the behavioural and regime-switching models of Barberis et al. (1998) and Veronesi (1999), we find that the news asymmetric effect on stock price returns decreases with firm-level ambiguity.