["Journal of Money, Credit and Banking, EarlyView. ", "\nAbstract\nWe decompose stock market returns into cash flow news and discount rate news and show that an increase in discount rate news, which reflects an increase in the quantity of risk or level of risk aversion in the economy, predicts a decrease in future aggregate output. Discount rate news, in the form of news about the risk premium, dominates interest rate news and cash flow news and holds incremental predictive power relative to well‐established predictors of output. The predictive power is especially strong in the lower tail of output fluctuations. International evidence confirms U.S. results and also shows that global risk premium news predicts cross‐country output stronger than country‐specific risk premium news."]