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Intangible capital, volatility shock, and the value premium

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  • Yongkil Ahn

Abstract

This paper extends the canonical, neoclassical investment‐based asset‐pricing model through the incorporation of intangible capital and the formulation of a joint productivity distribution with economic uncertainty shocks at the firm level. The distinctive evolutionary dynamics of intangible capital as opposed to that of physical capital mitigate the negative impact of temporary uncertainty shock on production and serve well to explain the value premium with modest assumptions. The value premium is unconditionally positive, but the realized value spread plummets to negative after major transient second‐moment shocks, for example, the Loma Prieta Earthquake and the 9/11 terrorist attack.

Suggested Citation

  • Yongkil Ahn, 2019. "Intangible capital, volatility shock, and the value premium," The Financial Review, Eastern Finance Association, vol. 54(4), pages 739-762, November.
    • Handle: RePEc:bla:finrev:v:54:y:2019:i:4:p:739-762
    DOI: 10.1111/fire.12193
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    Cited by:

    1. Schubert, Torben & Jäger, Angela & Türkeli, Serdar & Visentin, Fabiana, 2020. "Addressing the productivity paradox with big data: A literature review and adaptation of the CDM econometric model," MERIT Working Papers 2020-050, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Luis García‐Feijóo & Benjamin A. Jansen, 2023. "International evidence on the association of leverage with stock returns and the value premium," The Financial Review, Eastern Finance Association, vol. 58(2), pages 315-341, May.
    3. Roth, Felix, 2019. "Intangible Capital and Labour Productivity Growth: A Review of the Literature," Hamburg Discussion Papers in International Economics 4, University of Hamburg, Department of Economics.

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