Real investment and risk dynamics

Ilan Cooper, Richard Priestley

Research output: Contribution to journalArticlepeer-review


We ask to what extent the negative relation between investment and average stock returns is driven by risk. We show that: (i) 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. Our evidence suggests that risk plays an important role in explaining the investment-return relation.

Original languageEnglish
Pages (from-to)182-205
Number of pages24
JournalJournal of Financial Economics
Issue number1
StatePublished - Jul 2011
Externally publishedYes


  • Expected returns
  • Q-theory
  • Real investment
  • Real options
  • Systematic risk

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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