This paper studies three sources of instability in parameter estimates of stock return models (1) time‐varying expected mean returns, (2) time‐varying return volatility and (3) changing institutional factors. We model United States stock returns as a function of a constant expected return and financing costs resulting from an institutional feature, delayed delivery. We examine two eight‐year periods and find that both contain a regime shift driven by anabrupt change in volatility. The first occurs during an internationalmonetary crisis amid important Watergate developments. The second is on the first trading day after the reappointment of Paul Volcker as the chairman of the United States Federal Reserve