Endogenous technological progress and the cross-section of stock returns

Xiaoji Lin

doi:10.1016/j.jfineco.2011.08.013

Endogenous technological progress and the cross-section of stock returns

Xiaoji Lin

Research output: Contribution to journal › Article › peer-review

63 Scopus citations

Abstract

I study the cross-sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. Technological progress is endogenously driven by research and development (R&D) investment and is composed of two parts. One part is devoted to product innovation; the other, to increasing the productivity of physical investment. The latter is embodied in new tangible capital. The model breaks the symmetry assumed in standard models between tangible and intangible capital, in which the accumulation processes of tangible and intangible capital stock do not affect each other. Qualitatively and, in many cases, quantitatively, the model explains well-documented empirical regularities.

Original language	English (US)
Pages (from-to)	411-427
Number of pages	17
Journal	Journal of Financial Economics
Volume	103
Issue number	2
DOIs	https://doi.org/10.1016/j.jfineco.2011.08.013
State	Published - Feb 2012
Externally published	Yes

Bibliographical note

Funding Information:
This paper is based on Chapter 1 of my doctoral dissertation at the University of Minnesota. I am grateful to my committee members Frederico Belo, John Boyd, Murray Frank, Tim Kehoe, and especially Robert Goldstein (chair) and Lu Zhang for their valuable advice and continual encouragement. I thank Antonio Bernardo, Laurent Fresard, John Kareken, Sam Kortum, Ellen McGrattan, Pedram Nezafat, Monika Piazzesi, Lukas Schmid, Chun Xia, and Suning Zhang for their comments. I thank the seminar participants at Arizona State University, Indiana University, London School of Economics and Political Science, New York University, University of Michigan, University of Minnesota, University of Toronto, University of Washington at Seattle, and the 2007 Financial Management Association Doctoral Students Consortium and the Western Finance Association 2008 meetings. I thank Ryan Israelsen for sharing the quality-adjusted investment goods price series. I acknowledge the support of the Carlson School Dissertation Fellowship. All errors are my own.

Keywords

Physical investment
R&D investment
Stock return
Technological progress

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.jfineco.2011.08.013

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title = "Endogenous technological progress and the cross-section of stock returns",

abstract = "I study the cross-sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. Technological progress is endogenously driven by research and development (R&D) investment and is composed of two parts. One part is devoted to product innovation; the other, to increasing the productivity of physical investment. The latter is embodied in new tangible capital. The model breaks the symmetry assumed in standard models between tangible and intangible capital, in which the accumulation processes of tangible and intangible capital stock do not affect each other. Qualitatively and, in many cases, quantitatively, the model explains well-documented empirical regularities.",

keywords = "Physical investment, R&D investment, Stock return, Technological progress",

author = "Xiaoji Lin",

note = "Funding Information: This paper is based on Chapter 1 of my doctoral dissertation at the University of Minnesota. I am grateful to my committee members Frederico Belo, John Boyd, Murray Frank, Tim Kehoe, and especially Robert Goldstein (chair) and Lu Zhang for their valuable advice and continual encouragement. I thank Antonio Bernardo, Laurent Fresard, John Kareken, Sam Kortum, Ellen McGrattan, Pedram Nezafat, Monika Piazzesi, Lukas Schmid, Chun Xia, and Suning Zhang for their comments. I thank the seminar participants at Arizona State University, Indiana University, London School of Economics and Political Science, New York University, University of Michigan, University of Minnesota, University of Toronto, University of Washington at Seattle, and the 2007 Financial Management Association Doctoral Students Consortium and the Western Finance Association 2008 meetings. I thank Ryan Israelsen for sharing the quality-adjusted investment goods price series. I acknowledge the support of the Carlson School Dissertation Fellowship. All errors are my own. ",

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N2 - I study the cross-sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. Technological progress is endogenously driven by research and development (R&D) investment and is composed of two parts. One part is devoted to product innovation; the other, to increasing the productivity of physical investment. The latter is embodied in new tangible capital. The model breaks the symmetry assumed in standard models between tangible and intangible capital, in which the accumulation processes of tangible and intangible capital stock do not affect each other. Qualitatively and, in many cases, quantitatively, the model explains well-documented empirical regularities.

AB - I study the cross-sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. Technological progress is endogenously driven by research and development (R&D) investment and is composed of two parts. One part is devoted to product innovation; the other, to increasing the productivity of physical investment. The latter is embodied in new tangible capital. The model breaks the symmetry assumed in standard models between tangible and intangible capital, in which the accumulation processes of tangible and intangible capital stock do not affect each other. Qualitatively and, in many cases, quantitatively, the model explains well-documented empirical regularities.

KW - Physical investment

KW - R&D investment

KW - Stock return

KW - Technological progress

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Endogenous technological progress and the cross-section of stock returns

Abstract

Bibliographical note

Keywords

UN SDGs

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