Benchmark-linked capital flows increase firms' CAPM βs, thereby raising managers' perceived cost of equity and reducing investment. Using exogenous variation from Russell and S&P 500 reconstitutions, we show that inclusion in a benchmark stock index increases a stock's CAPM β. Managers interpret the higher β as a higher cost of equity and reduce investment. Consistent with this mechanism, benchmark inclusion also raises the perceived cost of equity among stock analysts and regulators. Industries with larger increases in βs due to benchmarking have accumulated less capital over the past two decades. Benchmark-induced changes in the cross-section of CAPM βs do not cancel out but affect aggregate investment because higher βs fall on many firms with high investment elasticities, while lower βs benefit a few large but inelastic firms.