Investment Shocks and Asset Returns: International Evidence

Abstract

We study how investment-specific technology shocks are priced in a large cross section of stocks from 33 countries. The investment premium is generally negative and often significant in developed countries with greater access to capital, better financial institutions, and higher product market competition, while it is largely insignificant or sometimes even significantly positive in emerging markets with opposite characteristics. The investment premium is related to, but not subsumed in, the value premium. Our results underscore the importance of economic development and allocative efficiency in the pricing of technological advances, and help reconcile the conflicting existing evidence from the U.S. market with different sample periods.