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| Author: | Cooper, I. Priestley, R. |
| Title: | Real investment and risk dynamics |
| Journal: | Journal of Financial Economics
2011 : JUL, VOL 101:1 p. 182-205 |
| Index terms: | investment risk options stock returns assets |
| Language: | eng |
| Abstract: | This paper examines to what extent the negative relation between investment and average stock returns is driven by risk. It is shown that: (1) 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. The results suggest that risk plays an important role in explaining the investment-return association. |
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