We provide a theoretical model linking firm characteristics and expected returns. The key ingredient of our model is technological shocks embodied in new capital (IST shocks), which affect the profitability of new investments. Firms' exposure to IST shocks is endogenously determined by the...

Average return differences among firms sorted on valuation ratios, past investment, profitability, market beta, or idiosyncratic volatility are largely driven by differences in exposures of firms to the same systematic factor related to embodied technology shocks. Using a calibrated structural...

type="main" <title type="main">ABSTRACT</title> <p>We explore the impact of investment-specific technology (IST) shocks on the cross section of stock returns. Using a structural model, we show that IST shocks have a differential effect on the value of assets in place and the value of growth opportunities. This differential...</p>

We explore the role of technological innovation as a source of economic growth by constructing direct measures of innovation at the firm level. We combine patent data for US firms from 1926 to 2010 with the stock market response to news about patents to assess the economic importance of each...

We explore the impact of investment-specific technology (IST) shocks on the crosssection of stock returns. IST shocks reflect technological advances embodied in new capital goods. Using a structural model, we show that IST shocks have a differential effect on the two fundamental components of...

We develop a firm specific measure of growth opportunities based on the covariance of the firm's stock return with a portfolio that is long investment and short consumption producers (IMC). Given that firms with high growth opportunities are the prime beneficiaries of investment-specific shocks,...

We develop a general equilibrium model of asset prices in which the benefits of technological innovation are distributed asymmetrically. Financial market participants do not capture all the economic rents resulting from innovative activity, even when they own shares in innovating firms. Economic...