NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Productivity Growth and Stock Returns: Firm- and Aggregate-Level Analyses

Hyunbae Chun, Jung-Wook Kim, Randall Morck

NBER Working Paper No. 19462
Issued in September 2013
NBER Program(s):   CF

Technological innovation is not a blessing for all firms, or for investors holding the market. In the late 20th century US, individual firms’ stock returns correlate positively with their own productivity growth, yet the market return correlates negatively with aggregate productivity growth, yet. This seeming fallacy of composition reflects Schumpeterian creative destruction: a few technology winners’ stocks rise with their rising productivity while many technology losers’ stocks fall with their declining productivity. Thus, most individual firms’ stock returns correlate negatively with aggregate productivity growth. Analogous reasoning explains prior findings that the market return correlates negatively with aggregate earnings.

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Document Object Identifier (DOI): 10.3386/w19462

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