Identifying Preference for Early Resolution from Asset Prices
53 Pages Posted: 3 Apr 2023 Last revised: 9 Dec 2024
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Identifying Preference for Early Resolution from Asset Prices
Number of pages: 52
Posted: 07 Mar 2023
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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: 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
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