Is There a Macro-Announcement Premium?
74 Pages Posted: 11 Apr 2023 Last revised: 21 Apr 2023
Date Written: April 20, 2023
Abstract
The conditional return volatility barely drops at macro-announcements. This is at odds with the notion that high announcement returns are a manifestation of a large announcement premium. We show that models with an announcement premium cannot explain the joint patterns of return and volatility over announcement days. Surprisingly, traditional models, which do not feature such a premium, can. Our estimation results based on a statistical setup indicate that the average announcement return is mostly attributable to the monetary policy surprise and pure small-sample components, which do not average out in-sample; the announcement premium is estimated to be small, if any.
Keywords: macroeconomic announcement, announcement return, announcement premium, monetary policy surprise, small-sample issues
JEL Classification: G12, E52, C10, D83
Suggested Citation: Suggested Citation