Maximum Mispricing on Announcement Days

Martin Utrera, Alberto (2018) Maximum Mispricing on Announcement Days. Working Paper. UNSPECIFIED.

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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.

Item Type:
Monograph (Working Paper)
ID Code:
127602
Deposited By:
Deposited On:
27 Sep 2018 13:00
Refereed?:
No
Published?:
Published
Last Modified:
12 Jun 2020 07:30