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The Information-Technology Revolution and the Stock Market: Evidence

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  • Bart Hobijn
  • Boyan Jovanovic

Abstract

Why did the stock market decline so much in the early 1970s and remain low until the early 1980s? We argue that it was because information technology arrived on the scene and the stock-market incumbents of the day were not ready to implement it. Instead, new firms would bring in the new technology after the mid-1980s. Investors foresaw this in the early 1970s and stock prices fell right away. In our model, new capital destroys old capital, but with a lag. The prospect of this causes the value of the old capital to fall right away.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.91.5.1203
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 91 (2001)
Issue (Month): 5 (December)
Pages: 1203-1220

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Handle: RePEc:aea:aecrev:v:91:y:2001:i:5:p:1203-1220

Note: DOI: 10.1257/aer.91.5.1203
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