Let's say that today beta only accounts for 8% of the stock's variability, i.e. its R squared is 0.08.
If investors use beta to determine discount rates and calculate NPV, etc., can this 8% increase to, say, 12% solely because beta was used to make previous investment decisions?
Ideally I think the answer should be no, because if its R squared increases, that causes some kind of internal bias. But I don't know how to even start to think about it.