The macroeconomic announcement premium and information environment

Abstract

The quality of information environment has impact on the market risk premium and the expected risk reduction on macroeconomic announcement days. The risk premium is high when the risk is high as in standard asset pricing models, while the risk premium is low when the prevailing information environment is poor. The same is true for the expected risk reduction. These effects extend to market factor premiums (i.e., the premium associated with market betas) on various sets of portfolios and have a connection with business cycles. The findings are consistent with the notion that poor information environment hampers the effectiveness of learning.