This paper considers how estimates of the market model beta parameter can be biased by friction in the trading process (information, decision, and transaction costs) that (a) leads to a distinction between observed and ‘true’ returns; (b) causes observed returns to be generated asynchronously for a set of interdependent securities; and (c) thereby introduces serial cross-correlation into security returns. Several propositions are derived from which consistent estimators of beta are obtained, and the effect of differencing interval length on beta estimates is specified. The formulation is contrasted with the related analyses of Scholes-Williams (1977) and Dimson (1979).

Using a novel database that tracks web traffic on the Security Exchange Commission's EDGAR server between 2004 and 2015, we show that institutional investors gather information on a very particular subset of firms and insiders, and their surveillance is very persistent over time. This tracking behavior has powerful implications for their portfolio choice and its information content. An institution that downloaded an insider trading filing by a given firm last quarter increases its likelihood of downloading an insider trading filing on the same firm by more than 41.3 percentage points this quarter. Moreover, the average tracked stock that an institution buys generates annualized alphas of over 12% relative to the purchase of an average non tracked stock. We find that institutional managers tend to track top executives and to share educational and locational commonalities with the specific insiders they choose to follow. Collectively, our results suggest that the information in tracked trades is important for fundamental firm value and is only revealed following the information-rich dual trading by insiders and linked institutions.