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Productivity Growth and Stock Returns: Firm- and Aggregate-Level Analyses

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  • Hyunbae Chun
  • Jung-Wook Kim
  • Randall Morck

Abstract

Technological innovation is not a blessing for all firms, or for investors holding the market. In the late 20th century US, individual firms’ stock returns correlate positively with their own productivity growth, yet the market return correlates negatively with aggregate productivity growth, yet. This seeming fallacy of composition reflects Schumpeterian creative destruction: a few technology winners’ stocks rise with their rising productivity while many technology losers’ stocks fall with their declining productivity. Thus, most individual firms’ stock returns correlate negatively with aggregate productivity growth. Analogous reasoning explains prior findings that the market return correlates negatively with aggregate earnings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19462.

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Date of creation: Sep 2013
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Handle: RePEc:nbr:nberwo:19462

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