Julien Cujean (University of Bern)

Abstract. We rehabilitate empirically speculation as an explanation for the pre-announcement drift (Lucca and Moench, 2015). We propose that the drift is an outcome specic to one of two possible equilibria that arise when agents speculate on private information in a rational-expectations context. We link the disappearance of the drift in the last decade to a shift from one equilibrium to the other, coinciding with the introduction of new communication policies by the Fed. The disappearance of the drift has implications for beta dispersion and SML slope, and the way the two are responsible for a betterperforming CAPM; the SML slope exceeds market premium on announcements, and beta compression partly explains this fact when the drift is present. Methodologically, we present a new solution method for continuous-time, rational-expectations equilibria with discrete public signals, residual uncertainty in pay offs, and multiple stocks.