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Risk Factor Disclosures: Do Managers and Markets Speak the Same Language?

Abstract Views
1724
Author
Joshua Filzen Garrett McBrayer Kyle Shannon
Category
Financial
Date Posted
2016/11/03
Date Retrieved
2022/06/21
Date Revised
2022/06/21
Date Written
2022/05/12
Description
Prior research documents market responses to quarterly updates to annual risk factor disclosures suggesting quarterly risk factor updates are informative. In this study we explore whether future equity returns are associated with quarterly risk factor updates and whether updates containing more focused and specific language affect this relationship. We find that firms with quarterly risk factor updates experience lower future abnormal returns relative to firms without updates suggesting that on average the market reaction to quarterly risk factor updates is incomplete at the time the 10-Q is filed. This incomplete market reaction is driven primarily by the group of updates that is important yet is less specific about the effects of the risk on firm fundamentals. We also find that analysts underreact to the same group of risk factor updates associated with the market underreaction.
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JEL Classifications
D8 G14 M41 M48
Keywords
Risk Factor Disclosure Regulation Market Efficiency Abnormal Stock Returns
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1
Pages
37
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4141675
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