Real Investment and Risk Dynamics
نویسنده
چکیده
Firmssystematic risk falls (increases) sharply following investment (disinvestment). This risk dynamics is driven by real investment and not by changes in rm characteristics and is strongest among rms with valuable investment opportunities, highly irreversible investment and low operating leverage. Consistent with rational pricing, rms with poor investment opportunities, those most likely to be overinvesting, experience an increase in average returns and systematic risk following investment. For rms exercising valuable growth options the bulk of the negative investment (asset growth)-future returns relationship stems from di¤erences in risk factor loadings between high and low investing rms. JEL Classi cation: G0.
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