TL;DR
This paper models how AI stocks are valued as hedges against an AI singularity, highlighting market incompleteness and suggesting government transfers to support AI development.
Contribution
It introduces an asset pricing model linking AI stock premiums to hedging against AI singularity risks, emphasizing market incompleteness and policy implications.
Findings
AI stocks command a premium due to hedging against singularity risks
Market incompleteness affects AI valuation and development
Government transfers can mitigate distortions caused by singularity-driven growth
Abstract
AI stocks trade at extraordinary valuations. We develop an asset pricing model in which investors use AI stocks to hedge against an AI singularity that displaces their consumption. Because markets are incomplete -- investors cannot trade private AI capital -- AI stocks command a premium. Market incompleteness distorts both valuations and the efficient development of AI, creating a rationale for government transfers that becomes compelling when singularity-driven growth overwhelms deadweight costs. This paper was generated by AI, using https://github.com/chenandrewy/ralph-wiggum-asset-pricing/.
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