Asset pricing: A tale of two days

Savor, Pavel and Wilson, Mungo (2014) Asset pricing: A tale of two days. Journal of Financial Economics, 113 (2). pp. 171-201.

Abstract

We show that asset prices behave very differently on days when important macroeconomic news is scheduled for announcement. In addition to significantly higher average returns for risky assets on announcement days, return patterns are much easier to reconcile with standard asset pricing theories, both cross-sectionally and over time. On such days, stock market beta is strongly related to average returns. This positive relation holds for individual stocks, for various test portfolios, and even for bonds and currencies, suggesting that beta is after all an important measure of systematic risk. Furthermore, a robust risk–return trade-off exists on announcement days. Expected variance is positively related to future aggregated quarterly announcement day returns, but not to aggregated non-announcement day returns. We explore the implications of our findings in the context of various asset pricing models.

Item Type: Article
Keywords: Cross-section of returns; CAPM; Announcements; Risk; finance
Subject(s): Finance
Date Deposited: 13 Aug 2014 14:22
Last Modified: 02 Mar 2017 14:14
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5173

Actions (login required)

Edit View Edit View