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Risk, variety and volatility: growth, innovation and stock prices in early industry evolution

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  • Mariana Mazzucato

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Abstract

The paper studies the patterns of volatility in firm growth rates and stock prices during the early phase of the life-cycle of an old economy industry, the US automobile industry from 1900-1930, and a new economy industry, the US PC industry from 1974-2000. In both industries, firm growth rates are more volatile in the period in which innovation is the most “radical”. This is also the period in which stock prices are more volatile. The comparison sheds light on the co-evolution of industrial and financial volatility and the relationship between this co-evolution and mechanisms of Schumpetarian creative destruction. Results provide insight into the debate on whether the statistical behavior of firm growth rates is well represented by Gibrat’s Law. Copyright Springer-Verlag Berlin/Heidelberg 2003

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  • Mariana Mazzucato, 2003. "Risk, variety and volatility: growth, innovation and stock prices in early industry evolution," Journal of Evolutionary Economics, Springer, vol. 13(5), pages 491-512, December.
  • Handle: RePEc:spr:joevec:v:13:y:2003:i:5:p:491-512 DOI: 10.1007/s00191-003-0167-7
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    Cited by:

    1. J. Krafft & J. -L. Ravix, 2008. "Corporate Governance And The Governance Of Knowledge: Rethinking The Relationship In Terms Of Corporate Coherence," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(1-2), pages 79-95.
    2. Mariana Mazzucato & Massimiliano Tancioni, 2005. "Innovation and Idiosyncratic Risk," Computing in Economics and Finance 2005 81, Society for Computational Economics.
    3. Mata, José & Woerter, Martin, 2013. "Risky innovation: The impact of internal and external R&D strategies upon the distribution of returns," Research Policy, Elsevier, pages 495-501.
    4. Alessandro Caiani & Antoine Godin & Stefano Lucarelli, 2012. "Innovation and Finance: An SFC Analysis of Great Surges of Development," Economics Working Paper Archive wp_733, Levy Economics Institute.
    5. Jackie Krafft & Jacques-Laurent Ravix, 2005. "The governance of innovative firms: an evolutionary approach," Post-Print hal-00203620, HAL.
    6. Mariana Mazzucato, 2006. "Innovation and Stock Prices: a Review of some Recent Work," Revue de l'OFCE, Presses de Sciences-Po, vol. 97(5), pages 159-179.
    7. Jorge Niosi & Suma Athreye & Ted Tschang, 2012. "The Global Computer Software Sector," Chapters,in: Economic Development as a Learning Process, chapter 3 Edward Elgar Publishing.
    8. Alessandro Caiani & Antoine Godin & Stefano Lucarelli, 2014. "Innovation and finance: a stock flow consistent analysis of great surges of development," Journal of Evolutionary Economics, Springer, vol. 24(2), pages 421-448, April.

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    Keywords

    Growth rates; Stock prices; Innovation; Volatility;

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