The Effect of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market

Alessandro Beber () and Michael W. Brandt

No 9914, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the effect of regularly scheduled macroeconomic announcements on the beliefs and preferences of participants in the U.S. Treasury market by comparing the option-implied state-price density (SPD) of bond prices shortly before and after the announcements. We find that the announcements reduce the uncertainty implicit in the second moment of the SPD regardless of the content of the news. The changes in the higher-order moments, in contrast, depend on whether the news is good or bad for economic prospects. Using a standard model for interest rates to disentangle changes in beliefs and changes in preferences, we demonstrate that our results are consistent with time-varying risk aversion in the spirit of habit formation.

JEL-codes: G0 G1 (search for similar items in EconPapers)
Date: 2003-08
New Economics Papers: this item is included in nep-mac
Note: AP
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Citations: View citations in EconPapers (4)

Published as Beber, Alessandro and Michael W. Brandt. "The Effect of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market." Journal of Monetary Economics 53 (2006): 1997-2039.

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Related works:
Journal Article: The effect of macroeconomic news on beliefs and preferences: Evidence from the options market (2006)
Working Paper: The Effects of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market (2004)
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