Creative destruction and asset prices

Joachim Grammig () and Stephan Jank

No 10-14, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

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.

Keywords: creative destruction; asset pricing; size and value premium; patents (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cfn, nep-ino, nep-ipr and nep-pr~
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Related works:
Working Paper: Creative destruction and asset prices (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1014

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