The Effect of Reporting Streaks on Ex Ante Uncertainty

This paper predicts and finds that investor uncertainty surrounding a key information release event—the earnings announcement—is decreasing in a firm’s reporting streak. We use two proxies related to investor ex ante uncertainty and corresponding pricing of such uncertainty: option-implied volatilit...

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Bibliographic Details
Published in:Management science 2020-08, Vol.66 (8), p.3771-3787
Main Authors: Neururer, Thaddeus, Papadakis, George, Riedl, Edward J.
Format: Article
Language:English
Subjects:
Announcements
Earnings
earnings announcements
Financial reporting
Impending
implied volatilities
meet or beat analyst forecasts
Premiums
reporting streak
Risk assessment
Stock prices
Uncertainty
variance risk premium
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Summary:This paper predicts and finds that investor uncertainty surrounding a key information release event—the earnings announcement—is decreasing in a firm’s reporting streak. We use two proxies related to investor ex ante uncertainty and corresponding pricing of such uncertainty: option-implied volatilities and variance risk premiums; both are measured with maturities surrounding the impending quarterly earnings announcement. Consistent with prior research, we measure reporting streak as the number of consecutive quarters the firm meets or beats the consensus analyst earnings-per-share forecast. Empirical results confirm expectations that the two uncertainty-related constructs are decreasing in the length of the reporting streak. These results, combined with further evidence documenting that lower uncertainty leads to lower stock returns surrounding the earnings announcements, suggest that longer reporting streaks reflect lower risk during earnings announcements. This paper was accepted by Shiva Rajgopal, accounting.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2019.3320