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The Information Technology Revolution and the Stock Market: Evidence

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Author Info
Bart Hobijn
Boyan Jovanovic

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7684.

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Date of creation: May 2000
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Handle: RePEc:nbr:nberwo:7684

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O3 - Economic Development, Technological Change, and Growth - - Technological Change

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