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Macroeconomic Announcements and the News That Matters Most to Investors

Samia Badidi, Martijn Boons, and Rik Frehen

Management Science · 2026 · 72(10), 9215–9236

Published article · SSRN

In one sentence

The equity premium around macroeconomic announcements compensates investors for discount rate news and reinvestment risk.

Abstract

Studying a large set of macroeconomic announcements (MAs) and disentangling their news content, we find 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 ICAPM 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, not cash flows news.

Presentations
Alliance Manchester Business School*, City University of Hong Kong*, CUNEF*, ESSEC Business School, Lubrafin 2023, Robeco, Queen’s University Belfast*, Shanghai Advanced Institute of Finance*, Tilburg University, Universidade do Porto*, University of Bristol Business School*, and Vienna Graduate School of Finance*.
* Presentation by coauthors.

Citation

Badidi, Samia, Martijn Boons, and Rik Frehen (2026). Macroeconomic Announcements and the News That Matters Most to Investors. Management Science 72(10): 9215–9236. DOI: 10.1287/mnsc.2024.07650.