"Campbell and Vuolteenaho (2004) and Brennan, Wang, and Xia (2004) recently argue that the value premium co-moves with investment opportunities and thus reflects rational pricing. This paper extends their analysis by showing that the ICAPM interpretation of the value premium also sheds light on...

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...