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Risk Preferences and the Macroeconomic Announcement Premium

Publication ,  Journal Article
Ai, H; Bansal, R
Published in: Econometrica
January 1, 2018

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.

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Published In

Econometrica

DOI

EISSN

1468-0262

ISSN

0012-9682

Publication Date

January 1, 2018

Volume

86

Issue

4

Start / End Page

1383 / 1430

Related Subject Headings

  • Econometrics
  • 3803 Economic theory
  • 3802 Econometrics
  • 3801 Applied economics
  • 1403 Econometrics
  • 1402 Applied Economics
  • 1401 Economic Theory
 

Citation

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Ai, H., & Bansal, R. (2018). Risk Preferences and the Macroeconomic Announcement Premium. Econometrica, 86(4), 1383–1430. https://doi.org/10.3982/ECTA14607
Ai, H., and R. Bansal. “Risk Preferences and the Macroeconomic Announcement Premium.” Econometrica 86, no. 4 (January 1, 2018): 1383–1430. https://doi.org/10.3982/ECTA14607.
Ai H, Bansal R. Risk Preferences and the Macroeconomic Announcement Premium. Econometrica. 2018 Jan 1;86(4):1383–430.
Ai, H., and R. Bansal. “Risk Preferences and the Macroeconomic Announcement Premium.” Econometrica, vol. 86, no. 4, Jan. 2018, pp. 1383–430. Scopus, doi:10.3982/ECTA14607.
Ai H, Bansal R. Risk Preferences and the Macroeconomic Announcement Premium. Econometrica. 2018 Jan 1;86(4):1383–1430.
Journal cover image

Published In

Econometrica

DOI

EISSN

1468-0262

ISSN

0012-9682

Publication Date

January 1, 2018

Volume

86

Issue

4

Start / End Page

1383 / 1430

Related Subject Headings

  • Econometrics
  • 3803 Economic theory
  • 3802 Econometrics
  • 3801 Applied economics
  • 1403 Econometrics
  • 1402 Applied Economics
  • 1401 Economic Theory