We propose a mean-reverting stochastic process for the market beta. In a simulation study, the proposed model generates significantly more precise beta estimates than GARCH betas, betas conditioned on aggregate or firm-level variables, and rolling regression betas, even when the true betas are...

This paper examines the relation between information transmission and cross-autocorrelations. We present a simple model, where informed trading is transmitted from large to small stocks with a lag. In equilibrium, large stock illiquidity induced by informed trading portends stronger...