Is There a Macro-Announcement Premium?

65 Pages Posted: 12 Oct 2020 Last revised: 12 Apr 2021

See all articles by Mohammad Ghaderi

Mohammad Ghaderi

University of Kansas - School of Business

Sang Byung Seo

University of Wisconsin - Madison

Date Written: April 4, 2021

Abstract

The conditional volatility barely drops at macro-announcements. This is at odds with virtually all models that justify high macro-announcement returns through a high announcement premium. We propose an alternative explanation: macro-announcement days are, on average, with good news in existing sample periods. Our novel estimation approach reveals that high macro-announcement returns are not a manifestation of high conditional equity premiums but positive return innovations that are not averaged out in-sample. We find that macro-announcement days do not seem to operate with a separate mechanism. The patterns of macro-announcement days are not only well replicated by random samples from non-announcement days but also are fully rationalized by traditional equilibrium models that do not feature an announcement premium.

Keywords: macro-announcement returns, announcement premium, asymmetric volatility, VIX

JEL Classification: G12, G14, C10, C58

Suggested Citation

Ghaderi, Mohammad and Seo, Sang Byung, Is There a Macro-Announcement Premium? (April 4, 2021). Available at SSRN: https://ssrn.com/abstract=3676120 or http://dx.doi.org/10.2139/ssrn.3676120

Mohammad Ghaderi

University of Kansas - School of Business ( email )

1654 Naismith Dr.
Lawrence, KS 66045
United States

HOME PAGE: http://sites.google.com/site/mohaghaderi

Sang Byung Seo (Contact Author)

University of Wisconsin - Madison ( email )

975 University Avenue
Madison, WI 53706-1324

HOME PAGE: http://sites.google.com/site/sangbyungseo

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