Identifying Preference for Early Resolution from Asset Prices

Hengjie Ai, Ravi Bansal, Hongye Guo and Amir Yaron

No 31087, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D0 D9 D91 G0 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-rmg and nep-upt
Note: AP CF EFG IFM ME
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