Risk Preferences and the Macroeconomic Announcement Premium

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.