Financial crises are typically marked by substantial increases in ambiguity where prices appear to decouple from fundamentals. Consistent with ambiguity-based asset pricing theories, we find that ambiguity concerns are more severe for firms with higher pre-crisis earnings volatility, causing...

Prior research documents that volatility spreads predict stock returns. If the trading activity of informed investors is an important driver of volatility spreads, then the predictability of stock returns should be more pronounced during major information events. This paper investigates whether...

We document a significant positive relation between earnings announcement idiosyncratic volatility and stock returns in the 10-day window before future earnings announcements. The average of risk-adjusted return differences between stocks with the highest earnings announcement idiosyncratic...

Firms with lower profitability have lower expected returns because such firms perform better than expected when market volatility increases. The better-than-expected performance arises because unprofitable firms are distressed and volatile, their equity resembles a call option on the assets, and...

We investigate the joint ability of fundamental-based and market-based news to explain the anomalous underperformance of the stocks with high idiosyncratic volatility (high IVOL). An out-of-sample prediction of future profitability is adopted as a proxy for the fundamental–based news while...

Variance after-effect is a perceptual bias in the dynamic assessment of variance. Experimental evidence shows that perceived variance is decreased after prolonged exposure to high variance and increased after exposure to low variance. We introduce this effect in an otherwise standard financial...

We examine the role of concurrent information in the striking increase in investor response to earnings announcements from 2001 to 2016, as measured by return variability and volume following Beaver (1968). We find management guidance, analyst forecasts, and disaggregated financial statement...

In this paper, we characterize the relative importance of two sources of fundamental market-wide news—large firms’ earnings announcements and macroeconomic releases. Our investigation is motivated by growing concerns in the financial community about the increasing impact of individual...

We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions...

We study the implications of the quality of information about the business cycle for the pricing of defensive and cyclical stocks in a general equilibrium framework. We rely on a two-tree Lucas-style endowment economy in which the business cycle is modeled as an unobservable mean reverting...