Bubbles and the value of innovation

Valentin Haddad, Paul Ho and Erik Loualiche

Journal of Financial Economics, 2022, vol. 145, issue 1, 69-84

Abstract: Booming innovation often coincides with intense speculation in financial markets. Using over a million patents, we document two ways the market valuation of innovation and its economic impact become disconnected during bubbles. Specifically, an innovation raises the stock price of its creator by 40% more than is justified by future outcomes. In contrast, competitors’ stock prices move little despite their profits suffering. We develop a theory of investor disagreement about which firms will succeed that reconciles both the facts, unlike existing models of bubbles. Optimal innovation policy during bubbles must account for the disconnect.

Keywords: Bubbles; Innovation; Disagreement; Speculation (search for similar items in EconPapers)
JEL-codes: D84 G11 G12 G14 O30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Bubbles and the Value of Innovation (2022)
Working Paper: Bubbles and the Value of Innovation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:1:p:69-84

DOI: 10.1016/j.jfineco.2022.04.006

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