This article analyzes a dynamic general equilibrium under a generalization of Merton’s (1987) investor recognition hypothesis. A class of informationally constrained investors is assumed to implement only a particular trading strategy. The model implies that, all else being equal, a risk premium on a less visible stock need not be higher than that on a more visible stock with a lower volatility—contrary to results derived in a static meanvariance setting. A consumption-based capital asset pricing model (CAPM) augmented by the generalized investor recognition hypothesis emerges as a viable contender for explaining the cross-sectional variation in unconditional expected equity returns. A fundamental question in financial economics is how frictions affect equilibrium in capital markets. The real-world frictions that motivate our analysis are information costs. In a world of costly information, some investors will have incomplete information. Therefore we ask, first, how equity portfolios of informationally constrained investors can be characterized, and second, how the presence of these investors affects equilibrium. We formulate the answer to the first question as a hypothesis; our premise is that the aggregate portfolio of informationally constrained investors combines a direct investment in visible stocks with funds whose management is entrusted to others (who may possess more information). The main objective of this article is to develop a model that can accommodate our premise, thereby offering a detailed answer to the second question. The joint validity of the premise and the model is then evaluated empirically. Merton (1987), using a static mean-variance model, advanced the investor recognition hypothesis (IRH) to describe the portfolio formation of informationally constrained investors. In its pure static version, the IRH states that This article is based on my dissertation at the Wharton School of the University of Pennsylvania. I thank my committee members—Suleyman Basak (the chair), Andrew Abel, Shmuel Kandel, Richard Kihlstrom, Craig MacKinlay, Robert Stambaugh—as well as Simon Benninga, Domenico Cuoco, Bernard Dumas (the editor), Roger Edelen, Chrisopher Gadarowski, Sanford Grossman, Burton Hollifield, Gur Huberman, Srinivasa Varadhan, and two anonymous referees for helpful comments and suggestions. I am also grateful to seminar