A1526
Title: US equity announcement risk premia
Authors: Lukas Petrasek - Charles University Prague (Czech Republic) [presenting]
Jiri Kukacka - UTIA AV CR, v.v.i. (Czech Republic)
Abstract: The announcement risk premia is analyzed on the US market. Previous studies have found that a significant portion of the overall risk premia is earned on FOMC meeting days and on days when inflation and employment reports are published. The evidence suggests that while the announcement risk premium for these days still exists, there is a much wider range of macroeconomic data releases to consider. It is found that between September 1987 and March 2023, 99\% of the overall cumulative risk premia on the Russell 3000 index is earned on days when data on 17 important macroeconomic variables are released (46\% of all trading days). The average return on those days is 6.7 bps compared to 0.9 bps earned on days without any announcements. A trading strategy that holds long positions in equities on announcement days and long positions in risk-free assets on non-announcement days has a more than two times higher Sharpe ratio over a simple buy-and-hold strategy on equities. Up to 28 bps monthly returns are also documented on market-neutral portfolios sorted based on announcement sensitivity. These results are robust to the inclusion of several controls and are both economically and statistically significant.
