Earnings volatility, ambiguity, and crisis-period stock returns

Anwer S. Ahmed, Andrew S. McMartin, Irfan Safdar

Research output: Contribution to journalArticlepeer-review


Financial crises are 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 earnings volatility, causing investors to demand a higher ambiguity premium for such firms. While there is no relation between earnings volatility and stock returns under normal conditions, there is a significant negative relation between crisis-period stock returns and prior earnings volatility. The effect is stronger in firms with low institutional ownership and low analyst following, consistent with ambiguity concerns being greatest amongst firms with unsophisticated investors.

Original languageEnglish (US)
Pages (from-to)2939-2963
Number of pages25
JournalAccounting and Finance
Issue number3
StatePublished - Sep 1 2020


  • Ambiguity
  • Earnings volatility
  • Financial crisis
  • Stock returns

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)


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