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Does Innovation Cause Stock Market Runups? Evidence from the Great Crash

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  • Tom Nicholas
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    Abstract

    This article examines the stock market's changing valuation of corporate patentable assets between 1910 and 1939. It shows that the value of knowledge capital increased significantly during the 1920s compared to the 1910s as investors responded to the quality of technological inventions. Innovation was an important driver of the late 1920s stock market runup, and the Great Crash did not reflect a significant revaluation of knowledge capital relative to physical capital. Although substantial quantities of influential patents were accumulated during the post-crash recovery, high technology firms did not earn significant excess returns over low technology firms for most of the 1930s. (JEL G14, N12, N22, O30)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.4.1370
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    File URL: http://www.aeaweb.org/aer/data/sept08/20050283_data.zip
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    Bibliographic Info

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

    Volume (Year): 98 (2008)
    Issue (Month): 4 (September)
    Pages: 1370-96

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    Handle: RePEc:aea:aecrev:v:98:y:2008:i:4:p:1370-96

    Note: DOI: 10.1257/aer.98.4.1370
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    Cited by:
    1. Grammig, Joachim G. & Jank, Stephan, 2010. "Creative destruction and asset prices," CFR Working Papers 10-14, University of Cologne, Centre for Financial Research (CFR).
    2. Leonid Kogan & Dimitris Papanikolaou & Amit Seru & Noah Stoffman, 2012. "Technological Innovation, Resource Allocation, and Growth," NBER Working Papers 17769, National Bureau of Economic Research, Inc.
    3. Naomi R. Lamoreaux & Kenneth L. Sokoloff & Dhanoos Sutthiphisal, 2009. "The Reorganization of Inventive Activity in the United States during the Early Twentieth Century," NBER Working Papers 15440, National Bureau of Economic Research, Inc.
    4. Nicholas, Tom, 2011. "The origins of Japanese technological modernization," Explorations in Economic History, Elsevier, vol. 48(2), pages 272-291, April.
    5. Lansing, Kevin J., 2012. "Speculative growth, overreaction, and the welfare cost of technology-driven bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 461-483.
    6. Nicholas, Tom, 2011. "Cheaper patents," Research Policy, Elsevier, vol. 40(2), pages 325-339, March.

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