The investment CAPM provides an economic foundation for Graham and Dodd's (1934) Security Analysis, without mispricing. Expected returns vary cross-sectionally, depending on firms' investment, expected profitability, and expected investment growth. Our economic model also offers an appealing...

Using a structural model of default, we construct a measure of systemic default defined as the probability that many firms default at the same time. We account for correlations in defaults between firms through exposures to common shocks. The systemic default measure spikes during recession...