Identifying Preference for Early Resolution from Asset Prices

52 Pages Posted: 7 Mar 2023

See all articles by Hengjie Ai

Hengjie Ai

University of Wisconsin-Madison

Ravi Bansal

Duke University and NBER

Hongye Guo

The University of Hong Kong - University of Hong Kong

Amir Yaron

University of Pennsylvania -- Wharton School of Business; Bank of Israel; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 13, 2022

Abstract

This paper develops an asset market based test for preference for the timing of resolution of uncertainty. Our main theorem provides a characterization of preference for early resolution of uncertainty in terms of the risk premium of assets realized during the period when the informativeness of macroeconomic announcements is resolved. Empirically, we find support for preference for early resolution of uncertainty based on evidence on the dynamics of the implied volatility of S&P 500 index options before FOMC announcements.

Keywords: preference for early resolution of uncertainty, generalized risk sensitivity, macroeconomic announcements, volatility

JEL Classification: D81, G12

Suggested Citation

Ai, Hengjie and Bansal, Ravi and Guo, Hongye and Yaron, Amir and Yaron, Amir, Identifying Preference for Early Resolution from Asset Prices (October 13, 2022). Available at SSRN: https://ssrn.com/abstract=4376805 or http://dx.doi.org/10.2139/ssrn.4376805

Hengjie Ai

University of Wisconsin-Madison ( email )

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Ravi Bansal

Duke University and NBER ( email )

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Hongye Guo (Contact Author)

The University of Hong Kong - University of Hong Kong ( email )

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Amir Yaron

University of Pennsylvania -- Wharton School of Business ( email )

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