TY  - JOUR
AU  - Beber,Alessandro
AU  - Brandt,Michael W.
TI  - The Effect of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9914
PY  - 2003
Y2  - August 2003
UR  - http://www.nber.org/papers/w9914
L1  - http://www.nber.org/papers/w9914.pdf
N1  - Author contact info:
Alessandro Beber
Cass Business School
London
E-Mail: Alessandro.Beber.1@city.ac.uk

Michael W. Brandt
Fuqua School of Business
Duke University
One Towerview Drive
Durham, NC  27708
Tel: 919/660-1948
Fax: 919/660-8038
E-Mail: mbrandt@duke.edu
AB  - We examine the effect of regularly scheduled macroeconomic announcements on the beliefs and preferences of participants in the U.S. Treasury market by comparing the option-implied state-price density (SPD) of bond prices shortly before and after the announcements. We find that the announcements reduce the uncertainty implicit in the second moment of the SPD regardless of the content of the news. The changes in the higher-order moments, in contrast, depend on whether the news is good or bad for economic prospects. Using a standard model for interest rates to disentangle changes in beliefs and changes in preferences, we demonstrate that our results are consistent with time-varying risk aversion in the spirit of habit formation.
ER  -