We study the nexus between endogenous growth and asset prices. We show that endogenous growth models with either horizontal and vertical innovation match financial data well due to countercyclical dividends which are either procyclical or acyclical in US data. Countercyclical dividends...

We find that small innovators earn higher returns than small non-innovators for up to five years. We find no such innovation premium among large firms. A battery of tests shows that this innovation premium among small firms is explained by risk. Our findings, which are based on a simple measure...