Growth Opportunities, Technology Shocks, and Asset Prices

Leonid Kogan and Dimitris Papanikolaou

No 17795, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore the impact of investment-specific technology (IST) shocks on the crosssection of stock returns. IST shocks reflect technological advances embodied in new capital goods. Using a structural model, we show that IST shocks have a differential effect on the two fundamental components of firm value, the value of assets in place and the value of growth opportunities. This differential sensitivity to IST shocks has two main implications. First, risk premia on firms with abundant growth opportunities are different from those on firms with limited growth opportunities. Second, firms with similar levels of growth opportunities comove with each other, giving rise to the value factor in stock returns. Our model replicates the failure of the conditional CAPM to capture the value premium. Our empirical tests confirm the model's predictions for asset returns and investment rates.

JEL-codes: E22 E32 G12 O3 O4 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-mac
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published as Kogan, L., D. Papanikolaou, 2014, “Growth Opportunities, Technology Shocks, and Asset Prices.” Journal of Finance, 69, 675-718.

Downloads: (external link)
http://www.nber.org/papers/w17795.pdf (application/pdf)

Related works:
Journal Article: Growth Opportunities, Technology Shocks, and Asset Prices (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:17795

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17795

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().