Alina Sorescu, an associate professor of marketing at Mays Business School, and Sorin Sorescu, a professor and department head of the finance department, were winners in the Marketing Science Institute’s “Research Competition on Innovation.” They received a $7,500 grant to research their project titled “Epochal Innovation and Stock Market Bubbles.”

Alina Sorescu
Alina Sorescu

Sorin M. Sorescu, head of the finance department at Mays, said he and his wife plan to try to understand the relation between epochal innovations and stock market bubbles.

“The conventional wisdom is that epochal innovation causes bubbles, yet many prominent economic observers such as Allan Greenspan believe that it is in fact bubbles that allow innovation to take place, by providing cheap access to capital,” he explained.

“We plan to collect a comprehensive set of epochal innovations that have been introduced in the U.S. and UK since the 18th Century, as well as information on the diffusion of these innovations, and stock price data for firms involved in their commercialization,” he said. “We then plan to establish the causality between epochal innovation and bubbles — that is, we will seek to determine if there is a cause and effect relation between the two, or if perhaps another factor could explain why epochal innovations seem to coincide with stock market bubbles.”

A number of remarkable innovations in modern history appear to have been associated with bubbles in the prices of stocks, he said. Examples include technological innovations such as the internet revolution of the late 1990s, which was associated with a rapid rise and decline in the price of technology stocks, as well as financial innovations such as the securitization of subprime mortgage loans, associated with a rise and decline in the price of mortgage-backed securities during the latter part of 2000’s.

Sorin Sorescu
Sorin Sorescu

“These innovations all appear to share a common trait — they provide a major breakthrough in the advance of human knowledge, and a dominant source of sustained growth over long periods of time,” Sorin Sorescu said. Nobel Prize-winning economist Simon Kuznets refers to them as Epochal Innovations.

This research should help enhance the educational experience of Mays business students on several dimensions, Sorescu said, explaining that:

  • First, it exposes students, for the first time, to the concept of epochal innovation, its characteristics and its consequences.
  • Second, it gives them the tools to identify future stock market bubbles and understand that such “hot markets” can provide a cheap source of capital that can foster the next epochal innovation.
  • Third, it illustrates the importance of using historical data to advance our knowledge of the long-term consequences of innovation.

Ross Rizley, research director at the Marketing Science Institute, said he received 64 submissions for the competition — “more than we anticipated.”

“As a result, it has taken the competition review committee longer to evaluate all of the submissions than we had expected,” Rizley said at when announcing the winners. “And of course, given the large number of submissions, we received many more very high-quality proposals than we could possibly fund.”

The Sorescu team was one of eight competition winners, which received $7,500 grants to help support the research described in their proposals.