Creative destruction and asset prices

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFR working paper ; No. 10-14

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: creative destruction ; asset pricing ; size and value premium ; patents ; Kapitalertrag ; Klein- und Mittelunternehmen ; Capital Asset Pricing Model ; Schumpeterismus ; Innovationswettbewerb ; Unternehmenswert ; Patent ; Schätzung ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Grammig, Joachim G. ; Jank, Stephan
• Event: Veröffentlichung
• (who): University of Cologne, Centre for Financial Research (CFR)
• (where): Cologne
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/41352
• Last update: 10.03.2025, 11:44 AM CET