Winners and Losers: Creative Destruction and the Stock Market


Speaker


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 their future ideas will generate. We show how the unequal distribution of gains from innovation can give rise to the salient empirical patterns in asset price behavior, including a high risk premium on the aggregate stock market, return comovement and average return differences among growth and value firms, and the failure of traditional representative-agent asset pricing models to account for these facts.

This event is an Erasmus Finance Seminar. The Erasmus Finance Seminar series brings prominent researchers in Finance from all over the world to Rotterdam.