Real Investment, Risk and Risk Dynamics

46 Pages Posted: 25 Mar 2008 Last revised: 12 Jun 2009

See all articles by Ilan Cooper

Ilan Cooper

BI Norwegian Business School

Richard Priestley

Norwegian Business School

Date Written: June 11, 2008

Abstract

The spread in average returns between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the Chen, Roll and Ross (1986) factors. In addition, systematic risk and volatility fall sharply during large investment periods. Consistent with the predictions of both the q-theory and real options models, the systematic risk spread and fall in risk and volatility are largest for high q firms. Moreover, investment and asset growth factors can predict economic growth. Our evidence implies that much of negative investment (asset growth)-future returns relationship can be explained by rational pricing.

Keywords: Real Investment, Systematic Risk, Real Options, Mispricing, Tobin's q

JEL Classification: G0, G12, G31

Suggested Citation

Cooper, Ilan and Priestley, Richard, Real Investment, Risk and Risk Dynamics (June 11, 2008). AFA 2009 San Francisco Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1108450 or http://dx.doi.org/10.2139/ssrn.1108450

Ilan Cooper (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Richard Priestley

Norwegian Business School ( email )

Nydalsveien
37
N-0442 Oslo, 0283
Norway
47 46410515 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
377
Abstract Views
1,973
rank
85,088
PlumX Metrics