AbstractUsing the theory of stationary Markov chains, we uncover a previously unknown property of the behavior of betas. Specifically, if the cross‐sectional distribution of betas is stationary over time, then the set of firms that remain in an arbitrarily chosen beta interval between one period and the next will not regress toward the mean. This surprising result occurs in spite of the well‐known fact that the set of all the firms in the interval will exhibit the regression tendency. Our empirical tests indicate that betas behave in remarkable accordance with this predict