Intangible Capital, Volatility Shock, and the Value Premium

24 Pages Posted: 20 May 2020

See all articles by Yongkil Ahn

Yongkil Ahn

Hong Kong University of Science & Technology (HKUST)

Date Written: November 2019

Abstract

This paper extends the canonical, neoclassical investment‐based asset‐pricing model through the incorporation of intangible capital and the formulation of a joint productivity distribution with economic uncertainty shocks at the firm level. The distinctive evolutionary dynamics of intangible capital as opposed to that of physical capital mitigate the negative impact of temporary uncertainty shock on production and serve well to explain the value premium with modest assumptions. The value premium is unconditionally positive, but the realized value spread plummets to negative after major transient second‐moment shocks, for example, the Loma Prieta Earthquake and the 9/11 terrorist attack.

Keywords: economic uncertainty, intangible capital, value premium

JEL Classification: E22, E23, G11, G12

Suggested Citation

Ahn, Yongkil, Intangible Capital, Volatility Shock, and the Value Premium (November 2019). Financial Review, Vol. 54, Issue 4, pp. 739-762, 2019, Available at SSRN: https://ssrn.com/abstract=3601145 or http://dx.doi.org/10.1111/fire.12193

Yongkil Ahn (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Room 401, Hall 8, HKUST
Clear Water Bay
Hong Kong, 999999

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