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Technology prospects and the cross-section of stock returns

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  • Hsu, Po-Hsuan
  • Huang, Dayong

Abstract

In an economy with time-varying investment opportunities, the changes in technology prospects affect aggregate consumption and individual firm's future dividends, and lead to systematic technology risk. We construct a technology factor to track the changes in technology prospects measured by U.S. patent shocks, and find that this factor explains the growth of aggregate consumption, helps to price important stock portfolios, and carries significant risk premium. Our empirical results suggest the existence of technology risk in the cross-section of stock returns.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 17 (2010)
Issue (Month): 1 (January)
Pages: 39-53

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Handle: RePEc:eee:empfin:v:17:y:2010:i:1:p:39-53

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: Factor models Patents Technological innovations Tracking portfolios;

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