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Winners and Losers: Creative Destruction and the Stock Market

Author

Listed:
  • Leonid Kogan
  • Dimitris Papanikolaou
  • Noah Stoffman
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.

Suggested Citation

  • Leonid Kogan & Dimitris Papanikolaou & Noah Stoffman, 2013. "Winners and Losers: Creative Destruction and the Stock Market," NBER Working Papers 18671, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18671
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    References listed on IDEAS

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    4. Matthieu Gomez, 2017. "Asset Prices and Wealth Inequality," 2017 Meeting Papers 1155, Society for Economic Dynamics.

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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