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Technological Growth and Asset Pricing


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 Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Jianfeng Yu


University of Minnesota

September 2, 2009

Journal of Finance, Forthcoming

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.

Number of Pages in PDF File: 43

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

JEL Classification: G0, G1, E1, E2

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Date posted: December 7, 2006 ; Last revised: May 17, 2012

Suggested Citation

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

Contact Information

Nicolae Bogdan Garleanu
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building
Berkeley, CA 94720
United States
HOME PAGE: http://faculty.haas.berkeley.edu/garleanu
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Stavros Panageas (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jianfeng Yu
University of Minnesota ( email )
321 19th Avenue
Suite 3-122
Minneapolis, MN 55455
United States
HOME PAGE: http://users.cla.umn.edu/~jianfeng/
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