Conferences - Seminars
The macroeconomics of announcement premium
By Hengjie AI, Carlson School of Management, University of Minnesota
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.
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