Adam Upenieks

R&R: The Review of Asset Pricing Studies

(Sole-authored)

The capital asset pricing model (CAPM) performs poorly empirically, as market risk (beta) is weakly related to average excess returns. In low-news periods, identified using idiosyncratic news from the Dow Jones Newswire, market betas have a strong and positive relation with average returns. When idiosyncratic news is widespread, the beta–return relation weakens and the Security Market Line flattens. To explain this pattern, I develop a simple model in which firm-specific news creates return variation not captured by the CAPM and can distort the cross sectional relation between beta and returns when those news-day effects are unevenly distributed across stocks. Consistent with this mechanism, CAPM residual variance rises with aggregate news intensity, and the beta-return relationship is decreasing in the level of news. I provide evidence consistent with two channels: news partially corrects mispricing in anomaly-exposed firms, and managers cluster adverse disclosures when aggregate news flow is already elevated. Hybrid “betting-against-beta” trading strategies exploiting these periods earn high returns. I conclude that waves of high aggregate idiosyncratic news obscure the performance of the CAPM at the firm level and significantly influence asset pricing.

Presented at: AFFI 2026 · Future Finance Festival · Global Finance Conference 2026 · EFMA 2026 · FMARC 2026

(Sole-authored)

The Capital Asset Pricing Model (CAPM) is rejected empirically because market beta is weakly related to average returns. This paper shows that the performance of the CAPM depends on where institutional investors concentrate their attention. Using f irm-specific news from the Dow Jones Newswire and institutional attention measures from Bloomberg search activity, I isolate states in which market-wide attention is fo cused on publicly available firm-level news. The CAPM prices risk when institutional attention is concentrated on public firm-specific news, even though overall attention levels are lower. Market betas explain the cross section of stock returns, and the secu rity market line is steep and positive. In contrast, when attention is elevated but not well explained by firm-specific news, the beta–return relation flattens or reverses. To rationalize these findings, I develop a general equilibrium model in which investors allo cate attention between firm-specific public news and direct signals about the aggregate factor. Because attention to firm-specific news crowds out private learning about the common factor, greater attention to firm-level information increases posterior factor uncertainty. Investors require compensation for bearing this uncertainty, generating a higher equilibrium factor risk premium and a steeper security market line. Empirically, unconditional betas price returns for approximately 46% of trading days.