Growth and Risk

Abstract

Fewings [5] and Myers and Turnbull [13] have arrived at diametrically conflicting conclusions regarding the effect of growth on risk as measured by beta, the relative systematic risk in the Sharpe-Lintner-Mossin (SLM) capital asset pricing model. Fewings states his result in an unequivocal way: “…systematic capitalization risk of common stocks is undoubtedly a positive function of the rate of growth of expected corporate earnings” ([5, p. 53]) Myers and Turnbull, on the other hand, state their result in a more conditional form, making the result depend on the nature of market expectations revisions but conclude that “increasing the growth rate decreases B …” ([13], P. 327).