Risk Preferences and the Macroeconomic Announcement Premium

Hengjie Ai, Ravi Bansal

Research output: Contribution to journalArticlepeer-review

49 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)1383-1430
Number of pages48
Issue number4
StatePublished - 2018

Bibliographical note

Publisher Copyright:
© 2018 The Econometric Society


  • Equity premium
  • Knightian uncertainty
  • announcement
  • robustness


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