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http://ssrn.com/abstract=1012683
 
 

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Endogenous Technological Progress and the Cross Section of Stock Returns


Xiaoji Lin


Ohio State University (OSU) - Fisher College of Business

November 26, 2012

Journal of Financial Economics (JFE), Forthcoming
Fisher College of Business Working Paper No. 12-03-022
Charles A. Dice Center Working Paper No. 2012-022

Abstract:     
I study the cross sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. In the model, technological progress is endogenously driven by R&D investment and is composed of two parts. One part is product innovation devoted to creating new products; the other part is dedicated to increasing the productivity of physical investment and is embodied in new tangible capital (e.g., structures and equipment). The model breaks the symmetry assumed in standard models between intangible capital and tangible capital, in which the accumulation processes of tangible capital stock and intangible capital stock do not affect each other. The model explains qualitatively and in many cases quantitatively well-documented empirical regularities: (i) the positive relation between R&D investment and the average stock returns; (ii) the negative relation between physical investment and the average stock returns; and (iii) the positive relation between book-to-market ratio and the average stock returns.

Number of Pages in PDF File: 62

Keywords: Technological Progress, R&D Investment, Stock Return

JEL Classification: E23, E44, G12

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Date posted: March 25, 2008 ; Last revised: November 26, 2012

Suggested Citation

Lin, Xiaoji, Endogenous Technological Progress and the Cross Section of Stock Returns (November 26, 2012). Journal of Financial Economics (JFE), Forthcoming; Fisher College of Business Working Paper No. 12-03-022; Charles A. Dice Center Working Paper No. 2012-022. Available at SSRN: http://ssrn.com/abstract=1012683 or http://dx.doi.org/10.2139/ssrn.1012683

Contact Information

Xiaoji Lin (Contact Author)
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
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