Asymmetric Investor Reaction around Earnings Benchmark under Economic Uncertainty

This study examines the effect of macro‐economic shocks on asymmetric investor reactions to earnings announcements. Specifically, we focus on a small range around the earnings benchmark and find a disproportionately large market penalty for firms with small negative earnings surprises ( ES s) following an increase in macro‐uncertainty. By contrast, we find no evidence of an asymmetric market reaction to firms with small negative ES s following a decrease in macro‐uncertainty. While prior empirical research failed to document the large penalty for small negative ES s, our findings suggest macro‐economic shocks as a factor that explains the asymmetric pricing effect.