News and Asset Pricing: A High-Frequency Anatomy of the SDF

Abstract

Utilizing real-time newswire data together with a robustly estimated intraday Stochastic Discount Factor (SDF), we identify and precise the economic news that is priced. News related to monetary policy and finance on average accounts for most of the variation in the SDF, followed by news about international affairs and macroeconomic data. We also document non-trivial temporal variation in the relative importance of the news, along with marked differences in the estimated news risk premia in the “factor zoo.” Further highlighting the economic mechanisms at work, we associate the different news effects with interest rate, growth, and risk premium shocks.

Keywords: SDF, high-frequency factors, jumps, news, risk premiums

JEL Classification: C58, G12, G14