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Stock market excess returns are significantly higher on days when the government is scheduled to announce inflation statistics, unemployment statistics, and interest rate decisions. The average announcement day excess return from 1958 to 2007 is 10.6 basis points versus 1.4 basis points for all the other days. In contrast, the risk-free rate is detectably lower on announcement days, consistent with a precautionary saving motive. The authors show that a simple equilibrium model with deterministically varying aggregate risk can generate higher risk premia and lower risk-free rates around announcements.
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