Working Paper: NBER ID: w31087
Authors: Hengjie Ai; Ravi Bansal; Hongye Guo; Amir Yaron
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.
Keywords: No keywords provided
JEL Codes: D0; D9; D91; G0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased market volatility (G17) | preference for early resolution of uncertainty (D81) |
| informativeness of announcements (G14) | increased market volatility (G17) |
| expected informativeness (D83) | higher utility level of the representative agent (D11) |
| risk premium on claims to market volatility (G17) | preference for early resolution of uncertainty (D81) |