Asset Pricing: A Tale of Two Days

72 Pages Posted: 19 Mar 2012 Last revised: 21 Apr 2014

Pavel G. Savor

Temple University - Fox School of Business

Mungo Ivor Wilson

University of Oxford - Said Business School

Date Written: August 2013

Abstract

We show that asset prices behave very differently on days when important macroeconomic news is scheduled for announcement relative to other trading days. In addition to significantly higher average returns for risky assets on announcement days, return patterns are also much easier to reconcile with standard asset pricing theories, both cross-sectionally and across time. On such days, stock market beta is strongly related to average returns. This positive relation holds for individual stocks, for various test portfolios, and even for bonds and currencies, suggesting that beta is after all an important measure of systematic risk. Furthermore, a robust risk-return trade-off exists on announcement days. Expected variance is positively related to future aggregated quarterly announcement day returns, in contrast to market or aggregated non-announcement day returns where there is no evidence of predictability. We explore the implications of our findings in the context of various asset pricing models.

Suggested Citation

Savor, Pavel G. and Wilson, Mungo Ivor, Asset Pricing: A Tale of Two Days (August 2013). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024422 or http://dx.doi.org/10.2139/ssrn.2024422

Pavel G. Savor (Contact Author)

Temple University - Fox School of Business ( email )

Fox School of Business and Management
Philadelphia, PA 19122
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)

Paper statistics

Downloads
1,837
Rank
6,378
Abstract Views
5,799