I examine the asset pricing implications of technological innovations that allow capital to displace labor: automation. I develop a theory in which firms with high share of displaceable labor are negatively exposed to such technology shocks. In the model, firms optimally adopt technology to gain...

We show theoretically and empirically that no-arbitrage pricing magnifies the importance of noise when replication requires offsetting positions with similar fundamentals. This occurs because fundamentals are hedged, while any errors in the underlying asset prices are levered and amplified....