Risk Preferences and the Macroeconomic Announcement Premium

Published

Journal Article

© 2018 The Econometric Society This paper develops a revealed preference theory for the equity premium around macroeconomic announcements. Stock returns realized around pre-scheduled macroeconomic announcements, such as the employment report and the FOMC statements, account for 55% of the market equity premium. We provide a characterization theorem for the set of intertemporal preferences that generates a nonnegative announcement premium. Our theory establishes that the announcement premium identifies a significant deviation from time-separable expected utility and provides asset-market-based evidence for a large class of non-expected utility models. We also provide conditions under which asset prices may rise prior to some macroeconomic announcements and exhibit a pre-announcement drift.

Full Text

Duke Authors

Cited Authors

  • Ai, H; Bansal, R

Published Date

  • January 1, 2018

Published In

Volume / Issue

  • 86 / 4

Start / End Page

  • 1383 - 1430

Electronic International Standard Serial Number (EISSN)

  • 1468-0262

International Standard Serial Number (ISSN)

  • 0012-9682

Digital Object Identifier (DOI)

  • 10.3982/ECTA14607

Citation Source

  • Scopus