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

Takuya Kiriu and Norio Hibiki

International Review of Economics & Finance, 2024, vol. 93, issue PB, 842-857

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.

Keywords: Macroeconomic announcements; Risk premium; Risk; Investor preference; Recovery theorem (search for similar items in EconPapers)
JEL-codes: D8 E6 G1 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:93:y:2024:i:pb:p:842-857

DOI: 10.1016/j.iref.2024.05.020

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