Risk Preferences and The Macro Announcement Premium
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 1...
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| Veröffentlicht in: | NBER Working Paper Series 2016-08, p.22527 |
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| creator | Bansal, Ravi Ai, Hengjie |
| description | 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. |
| doi_str_mv | 10.3386/w22527 |
| format | Article |
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| ispartof | NBER Working Paper Series, 2016-08, p.22527 |
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| language | eng |
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| source | National Bureau of Economic Research Publications; Alma/SFX Local Collection |
| subjects | Asset Pricing Economic Fluctuations and Growth Economic theory Equity Expected utility Investments Macroeconomics Monetary Economics Preferences Robust control |
| title | Risk Preferences and The Macro Announcement Premium |
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