General Purpose Technologies and International Stock Returns

We propose that general purpose technologies (GPTs) — a class of technologies that have pervasive impacts on the economy and spill over across countries — are a source of non-diversifiable technology risk in international stock markets. We construct an empirical GPT factor from patent data and show that GPT risk explains a substantial fraction of the cross-sectional variation of global stock returns, including or excluding U.S. stocks. The role of the GPT factor is distinct from that of total factor productivity. Our results support a considerable degree of global financial market integration and suggest technology diffusion as a potential mechanism