Real investment and risk dynamics

Ilan Cooper, Richard Priestley

Research output: Contribution to journalArticlepeer-review

Abstract

We ask to what extent the negative relation between investment and average stock returns is driven by risk. We show that: (i) the average return spread between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the loadings on the Chen, Roll, and Ross (1986) factors; (ii) as predicted by q-theory and real options models, systematic risk falls during large investment periods; (iii) the returns of factors formed on the investment-to-assets, asset growth, and investment growth all forecast aggregate economic activities. Our evidence suggests that risk plays an important role in explaining the investment-return relation.

Original languageAmerican English
Pages (from-to)182-205
Number of pages24
JournalJournal of Financial Economics
Volume101
Issue number1
DOIs
StatePublished - Jul 2011
Externally publishedYes

Keywords

  • Expected returns
  • Q-theory
  • Real investment
  • Real options
  • Systematic risk

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Fingerprint

Dive into the research topics of 'Real investment and risk dynamics'. Together they form a unique fingerprint.

Cite this