Abstract
We propose that general purpose technologies (GPTs) — a class of technologies that have pervasive impacts on the domestic economy and spill over internationally — are a source of nondiversifiable technology risk in both the U.S. and the world. We construct an empirical GPT factor using patent data, and find that it predicts future growth rates of U.S. consumption, GDP, and industrial production. Using standard asset pricing tests, we show that GPT risk is priced in U.S. and international stock returns, and exposure to GPT risk explains a substantial fraction of the cross-sectional variation in stock returns.
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