IDEAS home Printed from https://ideas.repec.org/p/red/sed011/1325.html
   My bibliography  Save this paper

Innovation, Growth, and Asset Pricing

Author

Listed:
  • Lukas Schmid

    (Duke University)

  • Howard Kung

    (Duke University)

Abstract

We examine the asset pricing implications of innovation and R\&D in a stochastic model of endogenous growth. In equilibrium, R\&D endogenously drives a small, persistent component in productivity growth, in line with the data. These productivity dynamics induce long and persistent swings in macro growth rates and asset market valuations at medium and low frequencies. With recursive preferences, households are very averse to such movements in growth rates and command high risk premia in asset markets, helping the model to quantitatively rationalize a variety of asset pricing data. In the model, the resolution of these puzzles is inherently linked to the strong propagation mechanism the model exhibits, absent in standard macroeconomic models. We find strong empirical support for innovation driven low frequency movements in aggregate growth rates and asset market valuations in the data.

Suggested Citation

  • Lukas Schmid & Howard Kung, 2011. "Innovation, Growth, and Asset Pricing," 2011 Meeting Papers 1325, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:1325
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2011/paper_1325.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emi Nakamura & Dmitriy Sergeyev & Jón Steinsson, 2017. "Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 1-39, January.
    2. Ina Simonovska & Espen Henriksen, 2013. "Time-Varying Risk Premia and Capital Flows to Developing Countries," 2013 Meeting Papers 1258, Society for Economic Dynamics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed011:1325. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.