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Papanikolaou_Dimirtis_0025_10RGB.jpgAssociate Professor Dimitris Papanikolaou had a question. He wondered why investors are so willing to invest in growth firms – like Uber or Facebook – that have historically produced low average returns, when they could be investing in value stocks – like General Electric – that seem to provide a more guaranteed return.

Papanikolaou, who teaches finance at Kellogg, investigated that question in new research that recently won the Amundi Smith Breeden Award for best paper in the top-ranked Journal of Finance. He earned the same award last year for his paper on the value of investing in people.

With this year’s paper, Papanikolaou and his co-author, Leonid Kogan of MIT, examined eighty years of stock market data. Over the years, Papanikolaou said, there have been a number of possible explanations, but their research indicates that investors have a perfectly sensible reason to invest in growth companies.

“Value firms are riskier in the sense that they have more chance of being displaced by new technologies,” Papanikolaou said. They are less likely to capitalize on new advantages and more likely to be hurt by them.

Learn more about their award-winning research.