Logo Logo

Growth Opportunities, Technology Shocks and Asset Prices, Journal of Finance

Abstract

We explore the impact of investment-specific technology (IST) shocks on the crosssection of stock returns and firms' investment using a production-based asset pricing model. The key property of our model is that the present value of growth opportunities has higher beta with respect to IST shocks than the value of assets in place, which leads to three main implications. First, firms with a higher fraction of growth opportunities in the firm value (high-growth firms) exhibit risk premia different from those of firms with fewer growth opportunities (low-growth firms). Second, high-growth firms co-move with each other, giving rise to a systematic factor in stock returns distinct from the market portfolio and related to the value factor. Third, stock return betas with respect to the IST shocks reveal cross-sectional heterogeneity in firms' growth opportunities. We find empirical support for qualitative predictions of the model. We calibrate our model and show that its main predictions for investment dynamics, cash flows and expected returns are quantitatively consistent with the data.

Type

Article

Author(s)

Leonid Kogan, Dimitris Papanikolaou

Date Published

2014

Citations

Kogan, Leonid, and Dimitris Papanikolaou. 2014. Growth Opportunities, Technology Shocks and Asset Prices. Journal of Finance. 69(2)

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more