When Is Bad News Really Bad News?
Article first published online: 17 DEC 2002
The American Finance Association 2002
The Journal of Finance
Volume 57, Issue 6, pages 2507–2532, December 2002
How to Cite
Conrad, J., Cornell, B. and Landsman, W. R. (2002), When Is Bad News Really Bad News?. The Journal of Finance, 57: 2507–2532. doi: 10.1111/1540-6261.00504
- Issue published online: 17 DEC 2002
- Article first published online: 17 DEC 2002
- Cited By
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.