Working Paper: NBER ID: w19462
Authors: Hyunbae Chun; Jungwook 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.
Keywords: Productivity Growth; Stock Returns; Firm-Level Analysis; Aggregate-Level Analysis
JEL Codes: G14; G31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm's own total factor productivity (TFP) growth (O49) | stock returns (G12) |
| aggregate TFP growth (O49) | individual firms' stock returns (G12) |
| firm's own TFP growth (D25) | stock returns (G12) |
| aggregate TFP growth (O49) | negative spillover effects on individual firms' stock returns (G41) |