The Demographics of Innovation and Asset Returns

Nicolae Gârleanu, Leonid Kogan and Stavros Panageas ()

No 15457, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study asset-pricing implications of innovation in a general-equilibrium overlapping-generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call "displacement risk.'' This risk helps explain several empirical patterns, including the existence of the growth-value factor in returns, the value premium, and the high equity premium. We assess the magnitude of displacement risk using estimates of inter-cohort consumption differences across households and find support for the model.

JEL-codes: G10 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-ino
Date: 2009-10
Note: AP EFG
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