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The information technology revolution and the stock market: preliminary evidence

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Author Info

  • Bart Hobijn
  • Boyan Jovanovic

Abstract

Since 1968, the ratio of stock market capitalization to GDP has varied by a factor of 5. In 1972, the ratio stood at above unity, but by 1974, it had fallen to 0.45 where it stayed for the next decade. It then began a steady climb, and today it stands above 2. ; We argue that the IT revolution was behind this and, moreover, that the capitalization/GDP ratio is likely to decline and then rise after any major technological shift. The three assumptions that deliver the result are: 1) The IT revolution was anticipated by early 1973; 2) IT was resisted by incumbents, which led their value to fall and 3) Takeovers are an imperfect policing device that allowed many firms to remain inefficient until the mid 1980's. ; We lay out some facts that the IT hypothesis explains, but that some alternative hypotheses - oil-price shocks, increased market volatility, and bubbles - do not.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2000)
Issue (Month): Apr ()
Pages:

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Handle: RePEc:fip:fedfpr:y:2000:i:apr:x:2

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Keywords: Information technology ; Stock market;

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Cited by:
  1. Argandoña, Antonio, 2002. "Ethical challenges of the new economy: An agenda of issues," IESE Research Papers D/463, IESE Business School.
  2. Fatemeh Faghani & Solmaz Habibi & Seyed Mehdi Tabatabaee & Leila Razavi & Mohammad Kazem Emadzadeh, 2013. "The Role of Information Technology on Stock Market Development," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(1), pages 353-358, January.
  3. Nathan S. Balke & Mark E. Wohar, 2001. "Low frequency movements in stock prices: a state space decomposition," Working Papers 0001, Federal Reserve Bank of Dallas.
  4. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, EconWPA.
  5. Boyan Jovanovic & Peter L. Rousseau, 2000. "Technology and the Stock Market: 1885-1998," Vanderbilt University Department of Economics Working Papers 0042, Vanderbilt University Department of Economics.
  6. Claudio, MATTALIA, 2005. "Human Capital Accumulation in R&D-based Growth Models," Discussion Papers (ECON - Département des Sciences Economiques) 2005046, Université catholique de Louvain, Département des Sciences Economiques.
  7. Joshua S. Gans & David H. Hsu & Scott Stern, 2000. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," NBER Working Papers 7851, National Bureau of Economic Research, Inc.
  8. Lars Jonung, 2005. "Proceedings of the 2004 first annual DG ECFIN research conference on “Business Cycles and Growth in Europeâ€," European Economy - Economic Papers 227, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  9. Argandoña, Antonio, 2001. "Nueva economía y el crecimiento económico, La," IESE Research Papers D/437, IESE Business School.

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