NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Demographics of Innovation and Asset Returns

Nicolae Gârleanu, Leonid Kogan, Stavros Panageas

NBER Working Paper No. 15457
Issued in October 2009
NBER Program(s):   AP   EFG

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.

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Document Object Identifier (DOI): 10.3386/w15457

Published: Displacement Risk and Asset Returns (with Leonid Kogan and Stavros Panageas). Journal of Financial Economics , vol. 105 (2012), issue 3, pp. 491-510. Best Paper Award , Utah Winter Finance Conference 2011.

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