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Risk Preferences and the Macroeconomic Announcement Premium

  • 2017.11.17
  • Event
Speaker: Hengjie Ai, University of Minnesota

Topic:

Risk Preferences and the Macroeconomic Announcement Premium

 

Time & Date:

10:30am-12:00pm, 2017/11/21

Venue:

Room 502, Daoyuan Building, CUHK(SZ)

Speaker:

Hengjie Ai, University of Minnesota

Detail:

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 non-negative 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.