Sullivan, lebanon valley college abstract this paper explores the nearsimultaneous development of the capital asset pricing model by four men. Asset pricing wikibooks, open books for an open world. Technology sector management effectiveness information and. Capital asset pricing model capm intermediate level capital asset pricing model capm indicates what should be the expected or required rate of return on. We discuss recent approaches to measuring intangible capital and innovation, many of which rely on the.
No part of this book may be reproduced in any form by any electronic or mechanical means including photocopying, recording, or information storage and retrieval without permission in. On impact of a major technological shock, growth options emerge in the prices of all securities. An investment growth asset pricing model abstract in this paper we present a simple model where asset returns are functions of multiple investment growth rates. My model enriches the production technology of a standard general equilibrium asset pricing model by di erentiating between types of technological shocks. The price to book ratio p b ratio is a ratio used to compare a stocks market value to its book value.
Asset growth and the crosssection of stock returns 1611 returns up to 5 years beyond the sorting year. Every day, the financial markets bravely price trillions of dollars in such risky securities as stocks, bonds, options, futures, and derivatives. The impact of technological waves on asset prices is the focus of this paper. Bstz commenced operations in june 2019 with the investment objectives of providing total return and income through a combination of current income, current gains and longterm capital appreciation. Its probably true that the first book you study about a subject inevitably determines your approach to it afterwards. Free economics books download ebooks online textbooks tutorials.
I propose a dynamic general equilibrium model that links investmentspeci. First, we can examine whether real world asset prices and investor portfolios conform to the. We examine the asset pricing implications of a production economy whose long. More importantly, we attribute sharp declines and increases in the stock market such as the ones that occurred in the early 1970s and mid 1990s in the united states to expected rapid technological diffusion. The theory of asset pricing is concerned with explaining and determining prices of. In this paper we study the implications of generalpurpose technological growth for asset prices. Second, the growth rate of labor income and dividends is weakly correlated. To elaborate on how we can use asset prices to forecast a sectors growth prospects.
The global asset management industry has reached a tipping point. He presents applications to stocks, bonds, and options. To test this, we create a productivity factor using 4digit industrylevel total factor productivity estimates. Technological growth and asset pricing ebook, 2009. Asset pricing theory tries to understand the prices or values of claims to uncertain payments. Vernon ruttan has written an encyclopedic volume on the role of technology in economic growth in both industrialized and poorer countries. Asset pricing theory all stems from one simple concept, derived in the. The journal has experienced a sustained influx of high quality submissions, allowing it to increase its annual number of published papers. The link between the macroeconomy and asset pricing in our model revolves around the idea that growth options of. For debt, asset pricing is relatively simple, as cash flows to the owner are contractually fixed.
The systematic determination of their values asset pricing has developed dramatically in the last few years due to advances in financial theory and econometrics. Tristate capital first quarter 2020 results include record. In these models, technological innovation shocks propagate. The book contains a superb integration of the recent insights of new growth theory and detailed studies of the process of technological innovation at the microeconomic level. Asset pricing, beta, size, and book tomarket equity, efficient market. This book will be the starting point for all readers interested in. We extend the famafrench model by considering growth option as well as distressleverage variables in explaining the cross section of stock returns. Technological growth and asset pricing, journal of finance, american finance association, vol. Asset pricing includes, but is not limited to, the following topic areas. Rfid tags market to witness an outstanding growth during.
It is calculated by dividing the current closing price of. The role of growth options in explaining stock returns. To gauge the robustness of our results across firm capitalization levels, we repeat our analysis across three sizegrouped portfolios small, medium, and large defined annually using the 30 thand 70 nyse market equity percentiles in june of. An overview of asset pricing models university of bath. A variant of the neoclassical growth model is considered to study the role of innovation, lags in technology adoption, total factor productivity tfp, and price markups as main determinants of. Blackrock science and technology trust ii bstz, is a limitedterm closedend equity fund. Cochrane traces the pricing of all assets back to a single idea price equals expected discounted payoffthat captures the. In contrast to neutral productivity shocks, the economy needs to invest to realize the bene. Endogenous technological progress and the cross section of.
Technology sector valuation, price to earnings pe, price. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, cochrane builds a unified account of modern asset pricing. Three essays on financial intermediation and asset pricing. Samuelson award for scholarly writing on lifelong financial security, john cochranes asset pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. In these models, technological innovation shocks propagate differently than standard total factor productivity shocksand therefore have qualitatively distinct asset pricing implications.
Technological innovation, intangible capital, and asset prices. The model is tested for its ability to price the 25 famafrench portfolios using the generalized methods of moments gmm methodology, as well as famamacbeth crosssectional regressions. Asset pricing program, economic fluctuations and growth program. Under normal market conditions, the trust will invest at least 80% of its total assets in equity securities issued by u. Technological growth and asset pricing 1267 predictability from the leading consumptionbased approaches, whichas we showface challenges in explaining these facts. But, currently, there is no other text better than back. Book value of an asset is the value at which the asset is carried on a balance sheet and calculated by taking the cost of an asset minus the accumulated depreciation. Asset pricing implications of technology adoption dukes fuqua.
Asset pricing for dynamic economies this introduction to general equilibrium modeling takes an integrated approach to the analysis of macroeconomics and. A central idea in the theory of market microstructure is that asset prices need not equal fullinformation expectations of value because of a variety of frictions. January 24, 2008 abstract this paper provides evidence that investmentspeci. The paper by carlson, fisher, and giammarino 2004 is the most closely related to ours. Garleanu, panageas and yu 2012 examine the asset pricing implications of technological growth with both small productivity shocks and large innovations. Essays in technology and asset pricing pohsuan hsu the first chapter of this dissertation highlights the role of technology in asset pricing by demonstrating market return predictability based on aggregate technology shocks from both theoretical and empirical perspectives. Growth opportunities, technology shocks, and asset prices. Pricing and consumption risk and technological growth, asset pricing and. Accordingly, we contribute to literature that investigates the effects of technological innovations on asset prices. Introduction current efforts in the asset pricing literature have been focused on finding the underlying factors behind size and beme effect. Duffies dynamic asset pricing theory is not the best book to start. My first book on asset pricing was duffies dynamic asset pricing theory 2nd ed, and it has perhaps forever biased my judgment. Sectoral uncertainty, growth, and asset prices i document several novel empirical facts. The book has room for improvement, and i believe back is working on a 2nd edition.
In one of the most highly anticipated books in financial economics, john cochrane. A low price implies a high rate of return, so one can also think of the theory as explaining why some assets pay higher average returns than others. Likewise, longterm growth prospects mirror an economys innovative potential. Our sector strategist believes a potential recovery in corporate earnings growth could boost the marketand cyclical stocks. Even if growth rates are average, a company with a high roe will generally have a high pb ratio. Innovation, growth and asset prices howard kung lukas schmidy april 2012z abstract asset prices re ect anticipations of future growth. In 2018, after roughly a decade of positive momentum, the industry hit a wallas was sure to happen sooner or lateramid concerns over rising interest rates and a turn in the economic cycle. Asset pricing tests show that our modelimplied fourfactor model can explain a number of prominent crosssectional return spreads.
Raps will evaluate papers based on their substantive original contribution to our understanding of the pricing of assets. Endogenous technological progress and the crosssection of. The influence of productivity on asset pricing laurence booth, bin chang, walid hejazi, and pauline shum abstract ceteris paribus, highly productive industries should translate into high economic growth and high expected returns. Part of thefinance and financial management commons this dissertation is brought to you. In this paper, we examine the asset pricing implications of a stochastic model of endogenous growth. The author shows how the rates and directions of technical change are induced by changes in competitive funding and institutional innovations in the modern research university and industrial laboratory. For econometricians, the stochastic discount approach is increasingly important, and. The second part of the course notes goes over some important macroeconomic topics. This is an encyclopedic volume on the role of technology in economic growth in both advanced and poorer countries. Winners and losers leonid kogany dimitris papanikolaouz noah sto manx december 22, 2012 abstract we analyze the e ect of innovation on asset prices in a tractable, general equilibrium framework with heterogeneous households and rms. Professor boldrins research focuses on the theory and application of dynamic general equilibrium models. Technological innovation, intangible capital, and asset.
The trust is designed to act as a proxy for the price of bitcoin. An investmentgrowth asset pricing model request pdf. Lecture notes for macroeconomics i, 2004 yale university. Three essays on financial intermediation and asset pricing ujjal chatterjee university of wisconsinmilwaukee follow this and additional works at. So in theory, its share price, when multiplied by 1,000, should. The main focus of asset pricing theories, and therefore of most sections in. An overview of asset pricing models andreas krause university of bath school of management phone. Technology sector achieved return on average invested assets of 17.
This book gives an overview of the most widely used theories in asset pricing and. An overview of asset pricing models andreas krause. Innovation, growth and asset prices howard kung lukas schmidy may 2011z abstract asset prices re ect anticipations of future growth. If we divide equation 30 by the book value of physical capital, and. The technologicaladoption process leads to endogenous cycles in output and asset valuations. Theoretical and empirical models of asset prices and returns. Jack treynor, william sharpe, john lintner, and jan mossin. Capital utilization and market power crucially affect asset prices in an economy exposed to shocks that improve real investment opportunities through capitalembodied technological innovations.
Quarter 2019 for technology sector, price to sales ratio is at 4. Market microstructure has broader interest, however, with implications for asset pricing, corporate finance, and international finance. This note will focus both on models of economic growth and their empirical applications, and try to shed light on the mechanics of economic growth, technological change and sources of income and growth differences across countries. Asset tracking and inventory management solutions market. Comparison of capital asset pricing model and gordons wealth growth model for selected mining companies adeodatus sihesenkosi nhleko a research report submitted to the faculty of engineering and the built environment. An assets book value is equal to its carrying value on the balance sheet, and companies calculate it by netting the asset against its accumulated depreciation. These involve growth and business cycle analysis, asset pricing. I study the cross sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. We study the assetpricing implications of technological growth in a model with small, disembodied productivity shocks and large, infrequent technological in novations, which are embodied into new capital vintages. Return on investment total ranking has deteriorated compare to previous quarter from to 3. Quarter 2020 for technology sector, price to sales ratio is at 4.
The capital asset pricing model capm 11 if the stock has a high positive it will have large price swings driven by the market it will increase the risk of the investors portfolio in fact, will make the entire market more risky the investor will demand a. The capital asset pricing model is an elegant theory with profound implications for asset pricing and investor behavior. Naturally, these technological waves impact numerous markets, and especially asset markets, which re. Technology, growth, and development uniquely presents the complexities of technical and institutional change on the foundation of modern growth theory. Technological growth and asset pricing garleanu 2012 the. The paper is related to several strands of the literature. Chapter 5 option pricing theory and models in general, the value of any asset is the present value of the expected cash flows on that asset.
The rest is elaboration, special cases, and a closet full of tricks that make the central equation useful for one or another application. Investmentspeci c technological change and asset prices. He has written on economic growth, business cycles, asset pricing, the welfare system, innovation theory and technological progress, search theory, the labor market, intellectual property, fertility, and international trade. For technology companies, price pressures are greater today than ever before. Despite detoriation in net income, technology sector improved roi compare to previous quarter. Further, it identifies the key ideas that inspired the research of these men. Capital utilization, market power, and the pricing of. The asset prices we discuss would include prices of bonds and stocks, interest rates, exchange rates, and derivatives of all these underlying. Asset pricing program, economic fluctuations and growth program in this paper we study the implications of generalpurpose technological growth for asset prices. As above, the dynamics of economic growth rate and asset prices depend. But how useful is the model given the idealized world that underlies its derivation. But the liturature references and the endofchapter problems are solid. To investigate this question, we employ an equilibrium asset pricing approach, which suggests a nonarbitrage condition on the renttoprice ratio.
Firm characteristics across leverage book debtassets deciles. In the model, value firms invest less in intangible capital than do growth firms, so value firms do not gain as much from technological progress in increasing the productivity of physical capital as growth firms do. Simple representative agent models, growth with overlapping generations, neoclassical growth and dynamic programming, endogenous growth, choice under uncertainty, consumption and asset pricing, search, money and unemployment, overlapping generations models of money, a cashinadvance model. The extraordinary scope of the volume includes new insights on the role of the microprocessor and molecular biology in economic growth.
First, the return di erential between value and growth rms in the model has a relatively high exposure to the consumption growth of stockholders but only a weak exposure to the aggregate consumption growth. It is mathematically challanging unnecessarily, incomplete omitting lots of important topics, and very dense. Lowpriced competitors and sophisticated cios impel many companies to offer increasingly high discounts, eroding their prices across the board. It is the most uptodate text on the canonical asset pricing theory. Through several comparative static exercises, we show that the existence of technology. Under normal market conditions, the trust will invest at least 80% of its total assets in equity. Rapid house price growth and high pricetoincome ratio in major chinese cities have aroused a hot debate on whether there is an asset bubble in chinas residential housing market. In this section, we will consider an exception to that rule when we will look at assets with two specific characteristics. Marketing and management scholars will find this new book an insightful read, as well as those generally interested in the worldwide phenomenon of private. In this paper we demonstrate that the gradual diffusion of technology causes the stock market to exhibit a cyclical behavior. We find that growth option variables, namely growth in capital investment and yetunexercised growth options go, are significantly and negatively related to stock returns. Asset pricing implications of technology adoption xiaoji liny berardino palazzoz fan yangx august 24, 2017 abstract we study the impact of the technological change on asset prices in a dynamic model economy that features a stochastic technology frontier and costly technology adoption.
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