How Much Do Investors Care About Macroeconomic Risk? Evidence from Scheduled Economic Announcements

62 Pages Posted: 8 Dec 2008 Last revised: 21 Apr 2014

See all articles by Pavel G. Savor

Pavel G. Savor

DePaul University - Kellstadt Graduate School of Business

Mungo Ivor Wilson

University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: November 28, 2011

Abstract

Stock market average returns and Sharpe ratios are significantly higher on days when important macroeconomic news about inflation, unemployment, or interest rates is scheduled for announcement. The average announcement day excess return from 1958 to 2009 is 11.4 basis points versus 1.1 basis points for all the other days, suggesting that over 60% of the cumulative annual equity risk premium is earned on announcement days. The Sharpe ratio is ten times higher. In contrast, the risk-free rate is detectably lower on announcement days, consistent with a precautionary saving motive. Our results demonstrate a trade-off between macroeconomic risk and asset returns, and provide an estimate of the premium investors demand to bear this risk.

Keywords: Asset Pricing, Macroeconomic Risk, Macroeconomic News

JEL Classification: G12

Suggested Citation

Savor, Pavel G. and Wilson, Mungo Ivor, How Much Do Investors Care About Macroeconomic Risk? Evidence from Scheduled Economic Announcements (November 28, 2011). Available at SSRN: https://ssrn.com/abstract=1312091 or http://dx.doi.org/10.2139/ssrn.1312091

Pavel G. Savor (Contact Author)

DePaul University - Kellstadt Graduate School of Business ( email )

1 E. Jackson Blvd.
Chicago, IL
United States

Mungo Ivor Wilson

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288914 (Phone)

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