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The impact of macroeconomic announcements on risk, preference, and risk premium

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  • Kiriu, Takuya
  • Hibiki, Norio

Abstract

This study examines the impact of macroeconomic announcements on the risk premium and its sources under time-varying preference. We propose a novel method to decompose risk premium changes into the risk and preference components, which are estimated from option prices immediately before and after the announcement using the Recovery Theorem. The results of the empirical analysis for the United States stock market indicate that (1) the negative (positive) macroeconomic announcement surprise increases (decreases) the risk premium; (2) the risk component mainly drives the increase (decrease) in the risk premium; and (3) the preference component has limited influence on the risk premium.

Suggested Citation

  • Kiriu, Takuya & Hibiki, Norio, 2024. "The impact of macroeconomic announcements on risk, preference, and risk premium," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 842-857.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pb:p:842-857
    DOI: 10.1016/j.iref.2024.05.020
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    More about this item

    Keywords

    Macroeconomic announcements; Risk premium; Risk; Investor preference; Recovery theorem;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets

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