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- Publisher
- Wiley
- Copyright
- © 2018 The Econometric Society
- ISSN
- 0012-9682
- eISSN
- 1468-0262
- DOI
- 10.3982/ECTA14607
- Publisher site
- See Article on Publisher Site
Abstract
This paper develops a revealed preference theory for the equity premium around macroeconomic announcements. Stock returns realized around pre‐scheduled macroeconomic announcements, such as the employment report and the FOMC statements, account for 55% of the market equity premium. We provide a characterization theorem for the set of intertemporal preferences that generates a nonnegative announcement premium. Our theory establishes that the announcement premium identifies a significant deviation from time‐separable expected utility and provides asset‐market‐based evidence for a large class of non‐expected utility models. We also provide conditions under which asset prices may rise prior to some macroeconomic announcements and exhibit a pre‐announcement drift.
Journal
Econometrica – Wiley
Published: Jul 1, 2018
Keywords: ; ; ;