The Macroeconomic Announcement Premium

52 Pages Posted: 26 Mar 2018

See all articles by Jessica A. Wachter

Jessica A. Wachter

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Yicheng Zhu

University of Pennsylvania - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

Empirical studies demonstrate striking patterns in stock market returns in relation to scheduled macroeconomic announcements. First, a large proportion of the total equity premium is realized on days with macroeconomic announcements, despite the small number of such days. Second, the relation between market betas and expected returns is far stronger on announcement days as compared with non-announcement days. Third, risk as measured by volatilities and betas is equal on both types of days. We present a model with rare events that jointly explains these phenomena. In our model, which is solved in closed form, agents learn about a latent disaster probability from scheduled announcements. We quantitatively account for the empirical findings, along with other facts about the market portfolio.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Wachter, Jessica A. and Zhu, Yicheng, The Macroeconomic Announcement Premium (March 2018). NBER Working Paper No. w24432. Available at SSRN: https://ssrn.com/abstract=3149257

Jessica A. Wachter (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7634 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yicheng Zhu

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
22
Abstract Views
386
PlumX Metrics