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