Prof Martijn Boons

Tilburg University

Abstract: We study a large set of macroeconomic announcements (MAs), disentangle their news content, and estimate risk premia for each type of news in the cross-section of stocks. Our most interesting finding is that a portfolio that pays off around MAs that negatively impact the stock market commands a large and positive risk premium. Adding this portfolio to a position in the stock market substantially increases the Sharpe ratio, while reducing price impact exposure to MAs. We argue that this portfolio is risky, consistent with models of reinvestment risk. Our findings challenge equilibrium models predicting a negative relation between shocks to discount rates and marginal utility as well as stories of cash flow news arriving on MA days.