Macroeconomic Announcement Premium

36 Pages Posted: 4 Dec 2023 Last revised: 22 Sep 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

Multiple version iconThere are 2 versions of this paper

Date Written: November 2023

Abstract

The paper reviews the evidence on the macroeconomic announcement premium and its implications on equilibrium asset pricing models. Empirically, a large fraction of the equity market risk premium is realized on a small number of trading days with significant macroeconomic announcements. We review the literature that demonstrates that the existence of the macroeconomic announcement premium implies that investors’ preferences must satisfy generalized risk sensitivity. We show how this conclusion generalizes to environments with heterogeneous investors and demonstrate how incorporating generalized risk sensitivity affects economic analysis in dynamic setups with uncertainty.

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Suggested Citation

Ai, Hengjie and Bansal, Ravi and Guo, Hongye, Macroeconomic Announcement Premium (November 2023). NBER Working Paper No. w31923, Available at SSRN: https://ssrn.com/abstract=4652396

Hengjie Ai (Contact Author)

University of Wisconsin-Madison ( email )

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Madison, WI 53706
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HOME PAGE: http://www.hengjieai.com

Ravi Bansal

Duke University and NBER ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7758 (Phone)
919-660-8038 (Fax)

Hongye Guo

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

Pokfulam Road
Hong Kong, Hong Kong
China

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