Equity Prices, Productivity Growth and 'The New Economy
AbstractThe sharp increase in equity prices over the 1990s was widely attributed to permanently higher productivity growth derived from the New Economy. This paper establishes a rational expectations model of technology innovations and equity prices, which shows that under plausible assumptions, productivity advances can only have temporary effects on the fundamentals of equity prices. Using historical data on productivity of R&D capital, patent capital and fixed capital for 11 OECD countries, empirical evidence give strong support for the model by suggesting that technological innovations indeed have only temporary effects on equity returns.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Finance Research Unit in its series FRU Working Papers with number 2004/11.
Length: 42 pages
Date of creation: Oct 2004
Date of revision:
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More information through EDIRC
new economy; productivity; economic growth; equity prices;
Other versions of this item:
- Jakob B Madsen & E Philip Davis, 2006. "Equity Prices, Productivity Growth and 'The New Economy'," Economic Journal, Royal Economic Society, vol. 116(513), pages 791-811, 07.
- Jakob B. Madsen & E. Philip Davis, 2004. "Equity Prices, Productivity Growth, and the 'New Economy'," EPRU Working Paper Series 04-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Jakob B Madsen & E Philip Davis, 2003. "Equity Prices, Productivity Growth, And ‘The New Economy’," Public Policy Discussion Papers 03-04, Economics and Finance Section, School of Social Sciences, Brunel University.
- Jakob B Madsen & E Philip Davis, 2003. "Equity Prices, Productivity Growth, And ‘The New Economy’," Economics and Finance Discussion Papers 03-04, Economics and Finance Section, School of Social Sciences, Brunel University.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G3 - Financial Economics - - Corporate Finance and Governance
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-11-22 (All new papers)
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