Macroeconomic announcements trigger the repricing of previous firm-specific earnings news, generating cross-sectional heterogeneity in risk compensation. At earnings announcements, investors form joint beliefs about firm-specific fundamentals and aggregate conditions. Subsequent macroeconomic announcements reveal the aggregate state, leading investors to reassess the firm-specific component of prior earnings news. We quantify this repricing channel in a dynamic equilibrium model with learning across earnings and macroeconomic announcements. Empirical evidence supports the model's predictions: on macroeconomic announcement days, firms with recent earnings news earn lower risk premia than those without, and this effect is stronger when their earnings are more informative about aggregate conditions.

Subjective expectations and asset prices both revolve around distorted probabilities. Subjective expectations are expectations under biased probabilities, and asset prices are expectations under risk-neutral probabilities. Given this link, asset pricing techniques designed to estimate a Stochastic Discount Factor (SDF) can be used to estimate a Subjective Belief Factor (SBF), i.e., a distortion that characterizes many subjective expectations even for non-financial variables. Using the Survey of Professional Forecasters and Blue Chip, we find that differences between subjective expectations and statistical expectations for 24 macroeconomic variables can be summarized (average R-squared of 50%) by a single SBF related to real GDP growth and the T-bill rate. This SBF also accurately replicates differences across the 24 variables in the serial correlation of forecast errors and under/overreaction. Further, the SBF can be used to succinctly incorporate subjective beliefs data into asset pricing models, even those involving many expectations. Applying our measured SBF to a model of cross-sectional stock returns, we estimate that distorted beliefs account for the majority of excess returns for the Fama-French factors and explain about two thirds of the variation in returns across 176 anomalies, while the remaining third is attributed to preferences/risk. Our results support models like robust control and certain versions of diagnostic expectations in which agents’ beliefs across different variables are characterized by a single probability distortion.

I document a large increase in intraday market reactions to Consumer Price Index (CPI) announcements during the 2021--23 inflation surge. Asset prices across markets---including equities, interest rates, and inflation swap rates---respond significantly more strongly to CPI surprises than in the preceding low-inflation period. At the same time, reactions to other macroeconomic announcements remain comparatively unchanged. Overall, the market volatility attributable to macro announcements---driven by the CPI release---rises during the inflation surge. The patterns are likely not unique to 2021--23: historical evidence points to a stronger sensitivity to CPI surprises in earlier high-inflation episodes. Inspecting the mechanism, I find that the prevailing inflation level robustly predicts stronger CPI reactions and is closely linked to a proxy for ex-ante investor attention, which likewise amplifies market responses. Through the lens of a standard investor learning model, the increased market reaction to inflation news can help explain a substantial share of the heightened stock market volatility during inflation surges.