Bubbles and the Value of Innovation

Valentin Haddad, Paul Ho and Erik Loualiche

No 29917, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G0 G4 O3 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-fdg and nep-ino
Note: AP CF EFG PR
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Citations: View citations in EconPapers (2)

Published as Valentin Haddad & Paul Ho & Erik Loualiche, 2022. "Bubbles and the value of innovation," Journal of Financial Economics, vol 145(1), pages 69-84.

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Journal Article: Bubbles and the value of innovation (2022)
Working Paper: Bubbles and the Value of Innovation (2020)
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