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We offer a model that sheds light on the debate over whether corporate ownership concentration converges to the Berle-Means image. Our model takes into account the importance of both legal rulesThorp, Alireza Tourani-Rad, James Twaddle, Bruce White and the anonymous referees for their thoughts and comments. The usual disclaimer applies to this paper, and all remaining errors are our own responsibility.

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We extract dynamic conditional factor premiums from the Fama-French factor model and find that most anomalies disappear after one accounts for time variation in these premiums. Vector autoregression evidence shows that mutual causation between dynamic conditional alphas and macroeconomic surprises serves as a core qualifying condition for fundamental factor selection. This economic insight is an incremental step toward drawing a distinction between rational risk and behavioral mispricing models. To the extent that dynamic conditional alphas can reveal the marginal investor’s fundamental news and expectations about the cross-section of average asset returns, our economic insight helps enrich macroeconomic asset return prediction.

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