Is There a Macro-Announcement Premium?

59 Pages Posted: 12 Oct 2020 Last revised: 22 Jun 2022

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 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

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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