Productivity Growth and Stock Returns: Firm- and Aggregate-Level Analyses

46 Pages Posted: 13 Sep 2013

See all articles by Hyunbae Chun

Hyunbae Chun

Sogang University - Department of Economics

Jung-Wook Kim

Seoul National University - Graduate School of Business

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: September 11, 2013

Abstract

Technological innovation is not always a blessing for all the firms in an economy, or for investors who hold the market portfolio. In the late 20th century US, the market return correlates negatively with aggregate productivity growth, yet individual firms’ stock returns correlate positively with their own productivity growth. This is because most individual firms’ stock returns also correlate negatively with aggregate productivity growth. This seeming fallacy of composition reflects Schumpeterian creative destruction: a small number of technology winners’ stocks rise with their rising productivity and technology losers’ stocks fall with their declining productivity. Analogous reasoning explains prior findings of a negative relationship between the market return and aggregate earnings.

Keywords: Technological Innovation, Stock Return, Heterogeneity, Productivity, Fallacy of Composition

JEL Classification: G12, O33

Suggested Citation

Chun, Hyunbae and Kim, Jung-Wook and Morck, Randall K., Productivity Growth and Stock Returns: Firm- and Aggregate-Level Analyses (September 11, 2013). Available at SSRN: https://ssrn.com/abstract=2324622 or http://dx.doi.org/10.2139/ssrn.2324622

Hyunbae Chun

Sogang University - Department of Economics ( email )

Seoul, 121-742
Korea, Republic of (South Korea)
+82-2-705-8515 (Phone)
+82-2-704-8599 (Fax)

HOME PAGE: http://hompi.sogang.ac.kr/hchun/

Jung-Wook Kim (Contact Author)

Seoul National University - Graduate School of Business ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
132
Abstract Views
663
rank
195,361
PlumX Metrics