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Innovation and stock prices: a review of some recent work

Mazzucato, M

Revue de L'Observatoire Francais de Conjonctures Economiques   5 (97) 159-179

January 2006   (Date deposited September 2007)

The paper reviews work which draws a link between the dynamics of innovation and the dynamics
of stock prices. One of the key findings is the relationship between innovation intensity (e.g. radical
innovation) and the volatility of firm level stock returns. By connecting the analysis of risk and
uncertainty' often left in the finance literature to explanations related to 'animal spirits' and other
stochastic factors' to changes in real production conditions at the firm and industry level, the paper
provides the foundation for a Schumpetarian analysis of time varying risk.