The Information Technology Revolution and the Stock Market: Evidence
AbstractSince 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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7684.
Date of creation: May 2000
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Publication status: published as Hobijn, Bart and Boyan Jovanovic. "The Information-Technology Revolution And The Stock Market: Evidence," American Economic Review, 2001, v91(5,Dec), 1203-1220.
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- Bart Hobijn & Boyan Jovanovic, 2001. "The Information-Technology Revolution and the Stock Market: Evidence," American Economic Review, American Economic Association, vol. 91(5), pages 1203-1220, December.
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-05-16 (All new papers)
- NEP-FIN-2000-05-16 (Finance)
- NEP-FMK-2000-05-16 (Financial Markets)
- NEP-HIS-2000-05-16 (Business, Economic & Financial History)
- NEP-IND-2000-05-16 (Industrial Organization)
- NEP-INO-2000-05-16 (Innovation)
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