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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.

Suggested Citation

  • Hyunbae Chun & Jung-Wook Kim & Randall Morck, 2013. "Productivity Growth and Stock Returns: Firm- and Aggregate-Level Analyses," NBER Working Papers 19462, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19462
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    Cited by:

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    2. Abdoh, Hussein & Varela, Oscar, 2021. "What lies behind the asset growth effect?," Global Finance Journal, Elsevier, vol. 48(C).
    3. Bennett, Benjamin & Stulz, René & Wang, Zexi, 2020. "Does the stock market make firms more productive?," Journal of Financial Economics, Elsevier, vol. 136(2), pages 281-306.
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    6. Randall Morck & Bernard Yeung & Wayne Yu, 2013. "R-squared and the Economy," NBER Working Papers 19017, National Bureau of Economic Research, Inc.

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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