Research articles for the 2020-09-06

Implied Dividend Yield as a New Stock Market Valuation Measure
Andrey Sarantsev

Long-run total real returns of the stock market are approximately equal to long-run real earnings growth plus average dividend yield. However, earnings can be distributed to shareholders not only via dividends, but via buybacks and debt retirement. Thus the total returns minus earnings growth can be considered as implied dividend yield. This quantity must be stable in the long run. If the converse is true: this quantity is abnormally high in the last few years, then the market is overpriced. A measure of such heat is (detrended) cumulative sum of differences. We regress next year's implied dividend yield upon this current heat measure. We simulate future returns, starting from current market conditions. We reject the conventional wisdom that currently the market is overpriced. In our model the current market is undervalued and is likely to grow faster than historically.

Productivity Gaps and Global Systematic Risk Exposure: Pricing Country-Industry Portfolios
Anand, Punit,Balvers, Ronald J.
Productivity shocks transmitted from productivity leaders to trailing sectors are systematic sources of risk. Global technology and knowledge diffusion leads to predictable patterns in productivity dynamics across countries and industries. Productivity gaps determine the level of exposure to the systematic leader productivity shocks. Firms in a country-industry with larger productivity gaps relative to the world leader are more dependent on the leaderĂ¢€™s innovations compared to their own productivity improvements. They thus have higher loadings on the leader productivity shocks and higher average stock returns. For OECD panel data, a country-industryĂ¢€™s productivity gap significantly predicts the stock returns of the country-industry: holding the quintile of country-industry portfolios with the largest gaps and shorting the quintile with the smallest gaps generates annual returns of 9.8% (6.7% after risk adjustment with standard factors). A factor associated with the productivity gap explains country-industry portfolio returns substantially better than standard factor models. Loadings on leader-country-productivity shocks are found to have substantial correlation with productivity gaps, and leader productivity shocks are more important for stock returns than idiosyncratic productivity shocks. These findings suggest that the productivity gaps and associated higher average returns are indeed tied to systematic risk.

The rise of science in low-carbon energy technologies
Kerstin Hötte,Anton Pichler,François Lafond

Successfully combating climate change will require substantial technological improvements in Low-Carbon Energy Technologies (LCETs), but designing efficient allocation of R\&D budgets requires a better understanding of how LCETs rely on scientific knowledge. Using data covering almost all US patents and scientific articles that are cited by them over the past two centuries, we describe the evolution of knowledge bases of ten key LCETs and show how technological interdependencies have changed over time. The composition of low-carbon energy innovations shifted over time, from Hydro and Wind energy in the 19th and early 20th century, to Nuclear fission after World War II, and more recently to Solar PV and back to Wind. In recent years, Solar PV, Nuclear fusion and Biofuels (including energy from waste) have 35-65\% of their citations directed toward scientific papers, while this ratio is less than 10\% for Wind, Solar thermal, Hydro, Geothermal, and Nuclear fission. Over time, the share of patents citing science and the share of citations that are to scientific papers has been increasing for all technology types. The analysis of the scientific knowledge base of each LCET reveals three fairly separate clusters, with nuclear energy technologies, Biofuels and Waste, and all the other LCETs. Our detailed description of knowledge requirements for each LCET helps to design of targeted innovation policies.