This thesis consists of three essays. The first essay studies the ability of stock return idiosyncrasy to predict future economic conditions over time. The second essay investigates the technological innovation and creative destruction during the 1920s and the 1930s, one of the most innovative periods in the 20th century. The third essay tests the performance of an investment strategy using information about past market-wide comovement. Stock return idiosyncrasy, defined as the ratio of firm-specific to systematic risk in individual stock returns, contains information about future growth rate in real GDP, industrial production, real fixed assets investment, and unemployment. Forecasts are generally significant one-quarter-ahead, particularly after World War II. These effects persist after controlling for other potential leading economic indicators, both in-sample and out-of-sample. These findings are consistent with information generating firms, presumably uniquely well-informed about economic conditions because their core business is information, adjusting their information production before downturns. The second essay studies the process of creative destruction during the technological revolution in the 1920s and 1930s. Intensified creative destruction magnifies the performance gap between winner and loser firms, and thus elevates firm-specific stock return variation. We find high firm-specific return variation in innovative industries and firms during the 1920s boom and the subsequent depression. We also find some evidence of elevated firm-specific return variation in manufacturing sectors with higher labor productivity, more research staff and more extensive electrification. In the third essay, we define the directional market-wide comovement measure as the proportion of stocks moving up together. Positing that high comovement reflects large fund inflows, we devise an investment strategy of entering the market whenever positive directional market-wide comovement passes a certain threshold. Specifically, this comovement-based investment strategy holds the market index when the market-wide upward comovement in the prior one to four weeks is above the fourth decile of the historical comovement distribution, and invests in the risk-free asset otherwise. During the sample period of 1954 to 2014, this strategy outperforms the NYSE value-weighted market index by 6.42% per year. Out of sample tests using NASDAQ stocks and TSE stocks validate the strategy. Our findings suggest that marketwide upward comovement identifies periods of market run-ups, when unsophisticated investor buying is apt to be driven by herding or information cascades.

This essay is the second of three. The first is nontechnical and in part autobiographical describing the evolution of my approach to developing a micro economic theory of money and financial institutions. This essay is devoted to a mathematical sketch of a closed economic exchange system with general equilibrium GE and rational expectations RE viewed game theoretically. It squeezes the last drop out of statics and an illusory dynamics in the form of the RE extension of GE with no other externalities beyond money and markets. The third essay builds on process models adding uncertainty, innovation, an active government, nonsymmetric information and other externaties that all lead away from a static equilibrium model to an evolving entity where competition involving finance and innovation is part of a dynamic non-equilibrium process.

This essay is the third of three. The first is nontechnical and in part autobiograhpical describing the evolution of my approach to developing a microeconomic theory of money and financial institutions. The second essay was devoted to a more formal sketch of a closed economic exchange system with no other externalities beyond money and markets. This essay builds on the existence of monetary exchange but also context, and active government with nonsymmetric information and many externaties indicate that the views of Keynes, Hayek and Schumpeter are all consistent with the next stages of complexity as the logic requires many different arrays of institutions to provide the necessary economic functions and adjust to the variety of socio-economic contexts.