Journal
JOURNAL OF FINANCE
Volume 67, Issue 4, Pages 1265-1292Publisher
WILEY
DOI: 10.1111/j.1540-6261.2012.01747.x
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We study the asset-pricing implications of technological growth in a model with small, disembodied productivity shocks and large, infrequent technological innovations, which are embodied into new capital vintages. The technological-adoption process leads to endogenous cycles in output and asset valuations. This process can help explain stylized asset-valuation patterns around major technological innovations. More importantly, it can help provide a unified, investment-based theory for numerous well-documented facts related to excess-return predictability. To illustrate the distinguishing features of our theory, we highlight novel implications pertaining to the joint time-series properties of consumption and excess returns.
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