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Displacement risk and asset returns

Gârleanu, Nicolae, Kogan, Leonid and Panageas, Stavros (2012) Displacement risk and asset returns. Journal of Financial Economics, 105 (3). pp. 491-510. ISSN 0304-405X

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Abstract

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.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-financ...
Additional Information: © 2012 Elsevier
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
G - Financial Economics > G0 - General > G00 - General
G - Financial Economics > G1 - General Financial Markets > G10 - General
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Sets: Departments > Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 30 Nov 2012 13:22
URL: http://eprints.lse.ac.uk/47575/

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