We provide a unified explanation for two significant trends over recent decades: the decline of the value premium and the rise of the markup. We show that these trends are primarily driven by high-markup firms, while both the value premium and the markup remain stable among firms with low markups. We develop a dynamic monopolistic competitive equilibrium model featuring a stochastic technology frontier and heterogeneity in firms' technology adoption decisions to explain these findings. We show that both the cross-time increase in the efficiency of the aggregate technology frontier and cross-firm heterogeneities in adoption benefits and demand elasticity are crucial to generate the observed trends in markups and the value premium, as well as the cross-sectional difference in these trends.

We propose a unified theory of asset price determination encompassing both “conventional” and “alternative” asset classes (private equity, real estate, etc.). The model features disruption of old by young firms and skewness in the distribution of innovative rents among the young innovators. The relative size of asset classes, the dynamics of rich investors’ wealth, and the returns of the various asset classes are jointly determined in equilibrium. Besides explaining the observed patterns of returns across asset classes, we analyze the theoretical properties of the most widely used performance-evaluation measure for alternative investments. We also provide connections between the growth of alternative investments, the dispersion of returns across investors, and the turnover inside the ranks of wealthy individuals.

Average idiosyncratic volatility and firm idiosyncratic volatility increase with the number of listed firms. Average industry idiosyncratic volatility increases with the number of listed firms in the industry. We ex-plain the relation between idiosyncratic volatility and the number of listed firms through Schumpeterian creative destruction. We show that Schumpeterian creative destruction increases as the number of listed firms increases. However, there is no consistent evidence of an incremental effect of the number of non-listed firms on idiosyncratic volatility either in the aggregate or at the industry level, suggesting that listed firms play a unique role in the dynamism of the economy.