NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Winners and Losers: Creative Destruction and the Stock Market

Leonid Kogan, Dimitris Papanikolaou, Noah Stoffman

NBER Working Paper No. 18671
Issued in January 2013
NBER Program(s):   AP   EFG

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 growth and value firms, and the failure of traditional representative-agent asset pricing models to account for cross-sectional differences in risk premia.

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This paper was revised on May 29, 2015

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Document Object Identifier (DOI): 10.3386/w18671

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