NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Risk Preferences and The Macro Announcement Premium

Hengjie Ai, Ravi Bansal

NBER Working Paper No. 22527
Issued in August 2016
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

The paper develops a theory for 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 during the 1961-2014 period, and virtually 100% of it during the later period of 1997-2014, where more announcement data are available. We provide a characterization theorem for the set of intertemporal preferences that generate a positive announcement premium. Our theory establishes that the announcement premium identifies a significant deviation from expected utility and constitutes an asset market based evidence for a large class of non-expected models that features aversion to ”Knightian uncertainty”, for example, Gilboa and Schmeidler [30]. We also present a dynamic model to account for the evolution of equity premium around macroeconomic announcements.

download in pdf format
   (584 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22527

Users who downloaded this paper also downloaded* these:
Cavagnaro, Sensoy, Wang, and Weisbach w22547 Measuring Institutional Investors’ Skill from Their Investments in Private Equity
Alexander and Currie w22542 Are Publicly Insured Children Less Likely to be Admitted to Hospital than the Privately Insured (and Does it Matter)?
Costinot, Donaldson, Kyle, and Williams w22538 The More We Die, The More We Sell? A Simple Test of the Home-Market Effect
Di Maggio, Kermani, and Palmer w22638 How Quantitative Easing Works: Evidence on the Refinancing Channel
Ben-Rephael, Carlin, Da, and Israelsen w23274 Demand for Information and Asset Pricing
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us