The macroeconomics of announcement premium

Empirically, a large fraction of the market equity premium is realized immediately upon macroeconomic announcements, such as the FOMC announcements and the unemployment report. In contrast, macroeconomic quantities respond slowly to these announcements. We show  that the joint behavior of the reactions of capital markets and macroeconomic quantities with respect to macro announcements imposes strong restrictions on  the specification of preferences in macro and finance models. We present a quantitative general equilibrium model to jointly account for the announcement  premium in time series and in the cross section, as well the impulse responses of macroeconomic quantities with respect to these announcements.