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Endogenous technological progress and the cross section of stock returns

Lin, Xiaoji (2009) Endogenous technological progress and the cross section of stock returns. Discussion paper, 634. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

I study the cross sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. In the model, technological progress is en- dogenously driven by R&D investment and is composed of two parts. One part is product innovation devoted to creating new products; the other part is dedicated to increasing the productivity of physical investment and is embodied in new tangible capital (e.g., structures and equipment). The model breaks the symmetry assumed in standard models between in- tangible capital and tangible capital, in which the accumulation processes of tangible capital stock and intangible capital stock do not a¤ect each other. The model explains qualitatively and in many cases quantitatively well-documented empirical regularities: (i) the positive relation between R&D investment and the average stock returns; (ii) the negative relation between physical investment and the average stock returns; and (iii) the positive relation between book-to-market ratio and the average stock returns.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2009 The Author
Library of Congress subject classification: T Technology > T Technology (General)
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Departments > Finance
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 634
Date Deposited: 07 Sep 2010 14:11
URL: http://eprints.lse.ac.uk/29047/

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