Technological Growth and Asset Pricing

43 Pages Posted: 7 Dec 2006 Last revised: 17 May 2012

See all articles by Nicolae Garleanu

Nicolae Garleanu

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Stavros Panageas

University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)

Jianfeng Yu

Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2, 2009

Abstract

In this paper we study the implications of general-purpose technological growth for asset prices. The model features two types of shocks: "small", frequent, and disembodied shocks to productivity and "large" technological innovations, which are embodied into new vintages of the capital stock. While the former affect the economy on impact, the latter affect the economy with lags, since firms need to first adopt the new technologies through investment. The process of adoption leads to cycles in asset valuations and risk premia as firms convert the growth options associated with the new technologies into assets in place. This process can help provide a unified, investment-based view of some well documented phenomena such as the asset-valuation patterns around major technological innovations, the countercyclical behavior of returns, the lead-lag relationship between the stock market and output, and the increasing patterns of consumption-return correlations over longer horizons.

Keywords: Production-based asset pricing, continuous-time methods, macro-finance, growth options, irreversible investment, technology adoption, vintage models

JEL Classification: G0, G1, E1, E2

Suggested Citation

Garleanu, Nicolae Bogdan and Panageas, Stavros and Yu, Jianfeng, Technological Growth and Asset Pricing (September 2, 2009). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=949857 or http://dx.doi.org/10.2139/ssrn.949857

Nicolae Bogdan Garleanu

University of California, Berkeley - Haas School of Business ( email )

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Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/garleanu

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Stavros Panageas (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jianfeng Yu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China