Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83659
Authors: 
Grammig, Joachim
Jank, Stephan
Year of Publication: 
2013
Series/Report no.: 
University of Tübingen Working Papers in Economics and Finance 61
Abstract: 
We relate Schumpeter's notion of creative destruction to asset pricing, thereby offering a novel explanation of size and value premia. We argue that small-value firms are more likely to be destroyed by serendipitous invention activity, and investors demand higher expected returns for bearing that risk. Large-growth stocks provide protection against creative destruction, so they receive expected return discounts. An ICAPM that accounts for creative destruction risk explains a considerable part of the cross-sectional return variation of size- and book-to-market-sorted portfolios. The estimated risk compensations associated with creative destruction are economically and statistically significant.
Subjects: 
Creative destruction
Asset prices
Size premium
Invention activity
JEL: 
G10
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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