Artificial Intelligence and Firms' Systematic Risk

Abstract

We provide direct evidence that firms' investments in new technologies affect the composition of firms' risk profiles. Leveraging comprehensive data on firm-level artificial intelligence (AI) investments, we document that firms that invest more in AI experience increases in their systematic risk, measured by market beta. This is unique to AI: robotics, IT, organizational capital, and R&D investments do not display similar effects. Our results are consistent with AI investments creating growth options: AI-investing firms become more growth-like, and the effect on market betas concentrates during market upswings and periods of increased news and attention around AI advances.

Keywords: Artificial intelligence, technology, systematic risk, market beta, asset pricing, growth options, cost of capital JEL: D22, E22, J23, J24, L11, O33