Studying a large set of macroeconomic announcements (MAs) and disentangling their news content, we show that a portfolio of stocks that pays off around MAs that negatively impact the aggregate stock market commands a positive risk premium. Adding this portfolio to a position in the aggregate market substantially increases Sharpe ratio while reducing MA risk exposure, which implies a rejection of the CAPM. Using state-of-the-art measures of cash flow and discount rate news and consistent with prominent intertemporal CAPM specifications, we argue that the portfolio’s risk premium compensates investors for large reinvestment risk. Thus, we conclude that the MA news that matters most to investors is discount rate news and not cash flows news. This paper was accepted by Lukas Schmid, finance. Funding: This paper is based upon work supported by the Dutch Research Council NWO Vidi Grant 201005, Fundação para a Ciência e a Tecnologia UID/ECO/00124/2020, and POR Lisboa and POR Norte Social Sciences DataLab, Project 22209. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2024.07650 .
Badidi et al. (2026) studied this question.