Displacement risk and asset returns
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InnovationOLG_2012.pdf
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Author(s) • •
Gârleanu, Nicolae
Panageas, Stavros
Kogan, Leonid
Date Issued
January 2012
Journal
Journal of Financial Economics
Publisher
Elsevier
Citation
Gârleanu, Nicolae, Leonid Kogan, and Stavros Panageas. “Displacement Risk and Asset Returns.” Journal of Financial Economics 105, no. 3 (September 2012): 491–510.
Version
Author's final manuscript
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.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
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DOI of Published Version
https://doi.org/10.1016/j.jfineco.2012.04.002