NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Hengjie Ai

Department of Finance
Carlson School of Management
University of Minnesota
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NBER Working Papers and Publications

August 2016Risk Preferences and The Macro Announcement Premium
with Ravi Bansal: w22527
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 Schmeidle...
 
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