Press Release Announcing the Ninth Ross Prize

Ninth $75,000 Ross Prize Awarded to Finance Scholars Lubos Pastor and Pietro Veronesi for Research on the Effect of Technological Revolutions on Stock Prices

Durham, NC – The Foundation for Advancement of Research in Financial Economics (FARFE) has awarded its ninth Stephen A. Ross Prize in Financial Economics to the paper Technological Revolutions and Stock Prices, written by Lubos Pastor and Pietro Veronesi, both from the University of Chicago. The paper was published in the American Economic Review in 2009 and makes two important contributions. First, it develops a framework to analyze the asset pricing implications of “technological revolutions” — large-scale adoptions of new technologies. Second, at a broader level, it highlights how carefully separating systematic and idiosyncratic uncertainty, and understanding what drives their joint dynamics, can offer a new perspective on asset price formation.

The biennial Ross Prize is given to a paper published in the last fifteen years and was first awarded in 2008. FARFE established the prize in honor of the late Steve Ross to recognize and encourage significant contributions to research in financial economics.

Asset price dynamics during technological revolutions often feature an initial bubble-like increase in stock prices, followed by a decline accompanied by high volatility. Such a pattern occurred during the Internet boom of the 1990s, the biotech revolution of the 1980s, the electronics boom in the 1960s, and others before that. More recently, it may be emerging again with the artificial intelligence stock rally. Understanding the source of these asset pricing dynamics presents a challenge to financial economists. There are also important implications beyond the financial market, when we think about the effect that financial markets may have on the allocation of resources in the real economy.

Against the tendency to attribute such boom-bust asset pricing patterns to market irrationality, the award-winning paper shows that these patterns can be consistent with fully rational behavior. Such behavior can also explain the time-series and cross-sectional dynamics of stock volatility and betas during technological revolutions. The key insight is that large-scale adoption of new technology changes the nature of risk, from idiosyncratic in early stages to systematic in later stages. This shift occurs as agents in the economy learn about the new technology, which drives the timing of its wide-scale adoption and generates asset pricing dynamics related to the change in discount rates.

The prize committee was: Itay Goldstein from the University of Pennsylvania (chair); John Campbell from Harvard University; Darrell Duffie from Stanford University; Nadya Malenko from Boston College; Chester Spatt from Carnegie Mellon University; Adrien Verdelhan from MIT; and Pierre-Olivier Weill from UCLA.

Founded in 2006, FARFE, a consortium of finance academics and practitioners from around the world, is committed to supporting research in financial economics and to facilitating productive interaction between research and practice in finance. For more details about FARFE, the Ross Prize, and the award-winning paper, see https://farfe.org/.

Contact: Adriano Rampini, FARFE president; (919) 660-7797

Links

FARFE 9th Ross Prize Citation

Past Winners

2022 Prize: To "Leverage Cycles and the Anxious Economy" by Ana Fostel and John Geanakoplos.

2020 Prize: To "Over-the-Counter Markets" by Darrell Duffie, Nicolae Gârleanu, and Lasse Pedersen.

2018 Prize: To "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles" by Ravi Bansal and Amir Yaron.

2016 Prize: To "Mutual Fund Flows and Performance in Rational Markets" by Jonathan Berk and the late Richard Green.

2014 Prize: To "Transform Analysis and Asset Pricing for Affine Jump-Diffusions" by Darrell Duffie, Jun Pan and Kenneth Singleton.

2012 Prize: To “Private and Public Supply of Liquidity,” by Bengt Holmstrom and Jean Tirole.

2010 Prize: To "Credit Cycles," by Nobuhiro Kiyotaki and John Moore.

2008 Prize: To "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," by Hayne Leland.

The Stephen A. Ross Prize in Financial Economics