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When Is Bad News Really Bad News?

Author

Listed:
  • Jennifer Conrad
  • Bradford Cornell
  • Wayne R. Landsman

Abstract

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.

Suggested Citation

  • Jennifer Conrad & Bradford Cornell & Wayne R. Landsman, 2002. "When Is Bad News Really Bad News?," Journal of Finance, American Finance Association, vol. 57(6), pages 2507-2532, December.
    • Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2507-2532
    DOI: 10.1111/1540-6261.00504
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    References listed on IDEAS

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