Growth opportunities, technology shocks, and asset prices

Leonid Kogan, Dimitris Papanikolaou*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

110 Scopus citations


We explore the impact of investment-specific technology (IST) shocks on the cross section of stock returns. Using a structural model, we show that IST shocks have a differential effect on the value of assets in place and the value of growth opportunities. This differential sensitivity to IST shocks has two main implications. First, firm risk premia depend on the contribution of growth opportunities to firm value. Second, firms with similar levels of growth opportunities comove with each other, giving rise to the value factor in stock returns and the failure of the conditional CAPM. Our empirical tests confirm the model's predictions.

Original languageEnglish (US)
Pages (from-to)675-718
Number of pages44
JournalJournal of Finance
Issue number2
StatePublished - Apr 2014

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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