Monday, June 3, 2024

The macroeconomic announcement premium and uncertainty

 


There is a macroeconomic announcement premium that has been found by several researchers. These researchers have found that a significant amount of equity risk premium is related to macro announcement dates. A recent paper focused on measuring the macroeconomic risk premium and information uncertainty at the same time. See "The Macroeconomic Announcement Premium and Information Uncertainty".

This classic view is that the risk premium is high when risk is high.  High risk will mean that the premium will be high and resolved when the macro announcement is made so there is a rise in the asset price on the announcement date.  A higher risk surrounding the announcement will lead to higher announcement premium.

However, if this risk premium is looked at during the conditional periods when information uncertainty is high, the announcement risk premium will be low.  The conclusion of this research is periods of high information uncertainty will hamper the effectiveness of learning and thus have an impact on the resolution of risk at the announcement date.  The authors use the dispersion in the survey of professional forecasters and the economic policy uncertainty index as proxies of information uncertainty. The VIX is used as the measure of perceived risk. When dispersion and policy uncertainty is high, there will be smaller announcement premium.




See the following for earlier work:

Why focus on macro announcements? That is where all of the return action is




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