DP20812 Reaching for Beta

• Egemen Genc Emanuel Moench Altan Pazarbasi
4 Nov 2025

Using equity mutual fund holdings and transactions, we show that managers actively tilt toward high-beta stocks when monetary policy is contractionary and short rates rise. This "reaching for beta" is persistent, elevates sector-wide net buying of high-beta stocks, and attracts fund inflows under tighter policy. It raises funds' raw but not risk-adjusted returns and induces temporary stock-level price pressure that subsequently reverts. We show that reaching for beta is consistent with fund managers counteracting investor outflows by boosting expected returns. Unlike reaching for yield in bonds, tighter policy increases risk-taking in equities, revealing a beta channel of monetary policy transmission.