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File name: SSRN-id2114140. ; Size: 274K
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Information Content Drives Risk Premium of Macroeconomic News on Bond and Stock Markets
Kristian Dicke
University of Cologne - Cologne Graduate School in Management, Economics and Social Sciences
Dieter Hess
University of Cologne - Department of Corporate Finance; University of Cologne - Centre for Financial Research (CFR)
July 20, 2012
Abstract:
We show that both stocks and bonds earn substantial excess returns on days when macroeconomic reports are released. However, stocks and bonds award their risk premia on different announcement days. Stock investors earn a risk premium only on days when news about GDP growth is released whereas bond investors are compensated only for bearing the risk of inflation related news. Stock holders earn more than 5% on growth related announcement days. In fact, other trading days do not earn a positive risk premium on stock markets during our sample period 1985 to 2009. On long-term bond markets, over three percent per year are earned on inflation related announcement days, i.e., 45% of the annual risk premium. Our findings have implications for, e.g., asset allocation as they suggest that investors resort to market timing strategies, i.e., they bring forward or delay market entries in order to earn the risk premium.
Keywords: Asset Pricing, Risk Premium, Macroeconomic News
JEL Classification: E44, G12, G14
working papers series
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Date posted: July 21, 2012
Suggested CitationDicke, Kristian and Hess, Dieter, Information Content Drives Risk Premium of Macroeconomic News on Bond and Stock Markets (July 20, 2012). Available at SSRN: http://ssrn.com/abstract=2114140 or http://dx.doi.org/10.2139/ssrn.2114140
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