Displacement risk and asset returns |
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Authors: | Nicolae Gârleanu Leonid Kogan Stavros Panageas |
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Institution: | 1. Haas School of Business, UC Berkeley, 545 Student Services Building, Berkeley, CA 94720-1900, USA;2. NBER, USA;3. CEPR, UK;4. Sloan School of Management, MIT E62-636, 100 Main Street, Cambridge, MA 02142, USA;5. University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Office 313, Chicago, IL 60637, USA |
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Abstract: | We study asset-pricing implications of innovation in a general-equilibrium overlapping-generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call “displacement risk.” This risk helps explain several empirical patterns, including the existence of the growth-value factor in returns, the value premium, and the high equity premium. We assess the magnitude of displacement risk using estimates of inter-cohort consumption differences across households and find support for the model. |
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Keywords: | Consumption-based asset pricing Displacement risk Value premium Equity premium Incomplete markets |
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