Technological Growth and Asset Pricing





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    • Gârleanu is with Haas School of Business, UC Berkeley; Panageas is with University of Chicago Booth School of Business; and Yu is with University of Minnesota Carlson School of Management. Previous versions of this paper (authored by Panageas and Yu) were circulated under the titles “Technological Growth, Asset Pricing, and Consumption Risk” and “Technological Growth, Asset Pricing, and Consumption Risk over Long Horizons.” We would like to thank two anonymous referees, Andy Abel, Ricardo Caballero, Adlai Fisher, Campbell Harvey (the Editor), Tano Santos, Mungo Wilson, Motohiro Yogo, Lu Zhang, and participants at seminars and conferences at Wharton, the Swedish School of Economics (Hanken), the Helsinki School of Economics GSF, the University of Cyprus, the Athens University of Economics and Business, the University of Piraeus, the Frontiers of Finance 2006, CICF 2008, the NBER 2005 EFG Summer Institute, the NBER 2006 Chicago Asset Pricing meeting, Western Finance Association 2006, SED 2006, and the Studienzentrum Gerzensee 2006 for very helpful discussions and comments.


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.