We show that unpriced cash flow shocks contain information about future priced risk. A positive idiosyncratic shock decreases the sensitivity of firm value to priced risk factors and simultaneously increases firm size and idiosyncratic risk. A simple model can therefore explain book-to-market and size anomalies, as well as the negative relation between idiosyncratic volatility and stock returns. Modeling idiosyncratic shocks can also produce a negative relation between growth options and risk and has additional asset pricing implications. More generally, our results imply that any economic variable correlated with the history of idiosyncratic shocks can help to explain expected stock returns.