The spread in average returns between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the Chen, Roll and Ross (1986) factors. Consistent with the predictions of both the q-theory and real options models, this systematic risk spread is largest for high q firms. Investment and asset growth factors can predict economic growth. Moreover, firms’ systematic risk and volatility fall sharply during large investment periods. Our evidence implies that much of negative investment (asset growth)- future returns relationship can be explained by rational pricing.