Is There a Macro-Announcement Premium?
65 Pages Posted: 12 Oct 2020 Last revised: 12 Apr 2021
Date Written: April 4, 2021
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: Suggested Citation