Technological Innovations and Aggregate Risk Premiums

35 Pages Posted: 21 Mar 2007 Last revised: 7 Nov 2014

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Abstract

In this paper, I propose that technological innovations increase expected stock returns and premiums at the aggregate level. I use aggregate patent data and research and development (R&D) data to measure technological innovations in the U.S., and find that patent shocks and R&D shocks have positive and distinct predictive power for U.S. market returns and premiums. Similar patterns are also found in international data including other G7 countries, China, and India. These findings are consistent with previous empirical studies based on firm-level data, and call for further theoretical explanations.

Keywords: Return predictability, Patents, Research and development, Technology shocks, Technological innovations

JEL Classification: E44, G12, O30

Suggested Citation

Hsu, Po-Hsuan, Technological Innovations and Aggregate Risk Premiums. Journal of Financial Economics (JFE), Forthcoming, AFA 2008 New Orleans Meetings Paper, Available at SSRN: https://ssrn.com/abstract=971211

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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Singapore, 117592
Singapore

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