Risk Preferences and the Macroeconomic Announcement Premium
Speaker: Hengjie Ai, University of Minnesota
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Topic: |
Risk Preferences and the Macroeconomic Announcement Premium |
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Time & Date: |
10:30am-12:00pm, 2017/11/21 |
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Venue: |
Room 502, Daoyuan Building, CUHK(SZ) |
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Speaker: |
Hengjie Ai, University of Minnesota |
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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. |
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