We amend the conditional CAPM to allow for unobservable long-run changes in risk factor loadings. In this environment, investors rationally "learn" the long-run level of factor loadings from the observation of realized returns. As a consequence of this assumption, we model conditional betas...

This paper explores the theoretical and empirical implications of time-varying and unobservable beta. Investors infer factor loadings from the history of returns via the Kalman filter. Due to learning, the history of beta matters. Even though the conditional CAPM holds, standard OLS tests can...

We complement the conditional capital asset pricing model (CAPM) by introducing unobservable long-run changes in risk factor loadings. In this environment, investors rationally “learn” the long-run level of factor loading by observing realized returns. As a direct consequence of this...

We complement the conditional CAPM by introducing unobservable long-run changes in risk factor loadings. In this environment, investors rationally `learn' the long-level of factor loadings from the observation of realized returns. As a direct consequence of this assumption, conditional betas are...

We study whether exchange traded funds (ETFs)--an asset of increasing importance--impact the volatility of their underlying stocks. Using identification strategies based on the mechanical variation in ETF ownership, we present evidence that stocks owned by ETFs exhibit significantly higher...

We find evidence of significant price manipulation at the stock level by hedge funds on critical reporting dates. Stocks in the top quartile by hedge fund holdings exhibit abnormal returns of 30 basis points in the last day of the month and a reversal of 25 basis points in the following day....

Hedge funds significantly reduced their equity holdings during the recent financial crisis. In 2008:Q3----Q4, hedge funds sold about 29% of their aggregate portfolio. Redemptions and margin calls were the primary drivers of selloffs. Consistent with forced deleveraging, the selloffs took place...

We provide a rational model of capital allocation to projects with uncertain exposure to a systematic risk factor. We show that signal-to-noise ratios are highest when the factor realization is close to zero. As a result, investors redirect more resources across projects during these times. This...

This paper finds that the market betas of value and small stocks have decreased by about 75% in the second half of the twentieth century. The decline in beta can be related to a long-term improvement in economic conditions that made these companies less risky.

Mandatory contributions to defined benefit pension plans provide a unique identification strategy to estimate the market's assessment of the value of internal resources controlling for investment opportunities. The price decrease following a pension-induced drop in cash is magnified for firms...