Growth Opportunities, Technology Shocks, and Asset Prices

2013/11/29 by LEONID KOGAN, Leonid Kogan, DIMITRIS PAPANIKOLAOU +1 · 4 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Financial Markets and Investment Strategies #Corporate Finance and Governance #Capital Investment and Risk Analysis

paper · doi:10.1111/jofi.12136

Abstract

ABSTRACT We explore the impact of investment‐specific technology (IST) shocks on the cross section of stock returns. Using a structural model, we show that IST shocks have a differential effect on the value of assets in place and the value of growth opportunities. This differential sensitivity to IST shocks has two main implications. First, firm risk premia depend on the contribution of growth opportunities to firm value. Second, firms with similar levels of growth opportunities comove with each other, giving rise to the value factor in stock returns and the failure of the conditional CAPM. Our empirical tests confirm the model's predictions.

Citations

• Tobin's Marginal q and Average q: A Neoclassical Interpretation
• Organization Capital and the Cross‐Section of Expected Returns
• Corporate Investment and Asset Price Dynamics: Implications for the Cross‐section of Returns
• The Value Premium

Cited by

• The Pollution Premium
• Where Is the Risk in Value? Evidence from a Market‐to‐Book Decomposition
• Hedging the Singularity
• Risk appetite and (mis)pricing

Related

• Optimal Investment, Growth Options, and Security Returns
• Corporate Investment and Asset Price Dynamics: Implications for the Cross‐section of Returns
• Asset Growth and the Cross‐Section of Stock Returns
• The Role of Growth Options in Explaining Stock Returns
• Empirical Evidence on Capital Investment, Growth Options, and Security Returns