Review of Accounting Studies

, Volume 10, Issue 2–3, pp 185–221

Information Uncertainty and Expected Returns



This study examines the role of information uncertainty (IU) in predicting cross-sectional stock returns. We define IU in terms of “value ambiguity,” or the precision with which firm value can be estimated by knowledgeable investors at reasonable cost. Using several different proxies for IU, we show that (1) on average, high-IU firms earn lower future returns (the “mean” effect), and (2) price and earnings momentum effects are much stronger among high-IU firms (the “interaction” effect). These findings are consistent with analytical models in which high IU exacerbates investor overconfidence and limits rational arbitrage.


behavioral finance cross-sectional returns information uncertainty risk 

JEL Classification

G12 G14 M41 


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Copyright information

© Springer Science+Business Media, Inc. 2005

Authors and Affiliations

  1. 1.Guanghua School of ManagementPeking UniversityU.S.A
  2. 2.Johnson Graduate School of ManagementCornell UniversityU.S.A
  3. 3.Barclays Global InvestorsSan FranciscoU.S.A

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