Endogenous technological progress and the cross section of stock returns

Xiaoji Lin

MPRA Paper from University Library of Munich, Germany

Abstract: I study the cross sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. In the model, technological progress is endogenously driven by R&D investment and is composed of two parts. One part is product innovation devoted to creating new products; the other part is dedicated to increasing the productivity of physical investment and is embodied in new tangible capital (e.g., structures and equipment). The model breaks the symmetry assumed in standard models between intangible capital and tangible capital, in which the accumulation processes of tangible capital stock and intangible capital stock do not affect each other. The model explains qualitatively and in many cases quantitatively well-documented empirical regularities: (i) the positive relation between R&D investment and the average stock returns; (ii) the negative relation between physical investment and the average stock returns; and (iii) the positive relation between book-to-market ratio and the average stock returns.

Keywords: Technological Progress; R&D Investment; Physical Investment; Stock Return (search for similar items in EconPapers)
JEL-codes: E6 (search for similar items in EconPapers)
Date: 2009-01-15
New Economics Papers: this item is included in nep-dge, nep-mac and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Endogenous technological progress and the cross-section of stock returns (2012)
Working Paper: Endogenous Technological Progress and the Cross Section of Stock Returns (2012)
Working Paper: Endogenous technological progress and the cross section of stock returns (2009)
Working Paper: Endogenous Technological Progress and the Cross Section of Stock Returns (2009)
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