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Title:Creative destruction and asset prices PDF Logo
Authors:Grammig, Joachim G.
Jank, Stephan
Issue Date:2010
Series/Report no.:CFR working paper 10-14
Abstract:This paper introduces Schumpeter's idea of creative destruction into asset pricing. The key point of our model is that small and value firms are more likely destroyed during technological revolutions, resulting into higher expected returns for these stocks. A two-factor model including market return and patent activity growth - the proxy for creative destruction risk - accounts for a large portion of the cross-sectional variation of size and book-to-market sorted portfolios and prices HML and SMB. The expected return difference between assets with the highest and lowest exposure to creative destruction risk amounts to 8.6 percent annually.
Subjects:creative destruction
asset pricing
size and value premium
Document Type:Working Paper
Appears in Collections:CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

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