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Identifying Preference for Early Resolution from Asset Prices

Author

Listed:
  • Hengjie Ai
  • Ravi Bansal
  • Hongye Guo
  • Amir Yaron

Abstract

This paper develops an asset market based test for preference for the timing of resolution of uncertainty. Our main theorem provides a characterization of preference for early resolution of uncertainty in terms of the risk premium of assets realized during the period when the informativeness of macroeconomic announcements is resolved. Empirically, we find support for preference for early resolution of uncertainty based on evidence on the dynamics of the implied volatility of S&P 500 index options before FOMC announcements.

Suggested Citation

  • Hengjie Ai & Ravi Bansal & Hongye Guo & Amir Yaron, 2023. "Identifying Preference for Early Resolution from Asset Prices," NBER Working Papers 31087, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31087
    Note: AP CF EFG IFM ME
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    More about this item

    JEL classification:

    • D0 - Microeconomics - - General
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G0 - Financial Economics - - General

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