Measuring risk information

We develop a measure of how information events impact investors' perceptions of risk that is broadly applicable and simple to implement. We derive this measure from an option-pricing model where investors anticipate an announcement that simultaneously conveys information on the announcer's expected future cash flows and risk profile. We empirically implement the measure using firms' earnings announcements, and show that it closely aligns with our model's predictions and offers strong forecasting power for firms' risk-factor exposures, implied costs of capital, liquidity, and future investments. We also apply our measure toward studying disclosure regulation, the efficacy of text-based proxies, and market-wide events, providing novel evidence on the transmission, measurement, and implications of risk information