Identifying Preference for Early Resolution from Asset Prices

53 Pages Posted: 3 Apr 2023 Last revised: 9 Dec 2024

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)

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Date Written: March 2023

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.

Suggested Citation

Ai, Hengjie and Bansal, Ravi and Guo, Hongye and Yaron, Amir and Yaron, Amir, Identifying Preference for Early Resolution from Asset Prices (March 2023). NBER Working Paper No. w31087, Available at SSRN: https://ssrn.com/abstract=4407495

Hengjie Ai (Contact Author)

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Ravi Bansal

Duke University and NBER ( email )

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Hongye Guo

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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