Winners and Losers: Creative Destruction and the Stock Market

Leonid Kogan, Dimitris Papanikolaou and Noah Stoffman

No 18671, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a general equilibrium model of asset prices in which the benefits of technological innovation are distributed asymmetrically. Financial market participants do not capture all the economic rents resulting from innovative activity, even when they own shares in innovating firms. Economic gains from innovation accrue partly to the innovators, who cannot sell claims on the rents that their future ideas will generate. We show how the unequal distribution of gains from innovation can give rise to a high risk premium on the aggregate stock market, return comovement and average return differences among firms, and the failure of traditional representative-agent asset pricing models to account for cross-sectional differences in risk premia.

JEL-codes: E20 E32 G10 G12 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-cse, nep-dge, nep-ino, nep-knm and nep-mac
Note: AP EFG
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Citations: View citations in EconPapers (4)

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