Is There a Macro-Announcement Premium?
59 Pages Posted: 12 Oct 2020 Last revised: 22 Jun 2022
Date Written: April 4, 2021
The conditional volatility barely drops at macro-announcements. This is at odds with recent models featuring a large announcement premium. We argue that the high ex-post announcement returns in the data were largely unexpected by investors ex-ante. Our maximum likelihood estimation reveals that high announcement returns are not a manifestation of a large announcement premium. Rather, they originate from positive return innovations that are not averaged out in-sample. We show that models with an announcement premium cannot explain the joint patterns of return and volatility over announcement days. We find that traditional models, which do not feature such a premium, can.
Keywords: macro-announcement returns, announcement premium, asymmetric volatility
JEL Classification: G12, G14, C10, C58
Suggested Citation: Suggested Citation