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Maximum Mispricing on Announcement Days

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@techreport{eb104da5a52c4287bedc48922bf2c219,
title = "Maximum Mispricing on Announcement Days",
abstract = "I study the role of macroeconomic announcements in the multidimensional challenge posed by Cochrane (2011). Recent work argues that market betas explain average returns well on announcement days, however I document that the exposure to a multi-signal factor contributes to explain the cross-section on those days. A long-short strategy exploiting these exposures can improve the market Sharpe ratio by 30% on announcement days. I argue that macroeconomic announcements can exacerbate CAPM-mispricing of certain stocks, and its large economic significance can be illustrated through simple trading rules. A parsimonious rational expectations model with multiple signals about fundamentals can reconcile these results.",
author = "{Martin Utrera}, Alberto",
year = "2018",
month = aug,
day = "31",
language = "English",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - Maximum Mispricing on Announcement Days

AU - Martin Utrera, Alberto

PY - 2018/8/31

Y1 - 2018/8/31

N2 - I study the role of macroeconomic announcements in the multidimensional challenge posed by Cochrane (2011). Recent work argues that market betas explain average returns well on announcement days, however I document that the exposure to a multi-signal factor contributes to explain the cross-section on those days. A long-short strategy exploiting these exposures can improve the market Sharpe ratio by 30% on announcement days. I argue that macroeconomic announcements can exacerbate CAPM-mispricing of certain stocks, and its large economic significance can be illustrated through simple trading rules. A parsimonious rational expectations model with multiple signals about fundamentals can reconcile these results.

AB - I study the role of macroeconomic announcements in the multidimensional challenge posed by Cochrane (2011). Recent work argues that market betas explain average returns well on announcement days, however I document that the exposure to a multi-signal factor contributes to explain the cross-section on those days. A long-short strategy exploiting these exposures can improve the market Sharpe ratio by 30% on announcement days. I argue that macroeconomic announcements can exacerbate CAPM-mispricing of certain stocks, and its large economic significance can be illustrated through simple trading rules. A parsimonious rational expectations model with multiple signals about fundamentals can reconcile these results.

M3 - Working paper

BT - Maximum Mispricing on Announcement Days

ER -