IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v99y2009i4p1451-83.html
   My bibliography  Save this article

Technological Revolutions and Stock Prices

Author

Listed:
  • Luboš Pástor
  • Pietro Veronesi

Abstract

We develop a general equilibrium model in which stock prices of innovative firms exhibit "bubbles" during technological revolutions. In the model, the average productivity of a new technology is uncertain and subject to learning. During technological revolutions, the nature of this uncertainty changes from idiosyncratic to systematic. The resulting bubbles in stock prices are observable ex post but unpredictable ex ante, and they are most pronounced for technologies characterized by high uncertainty and fast adoption. We find empirical support for the model's predictions in 1830-1861 and 1992-2005 when the railroad and Internet technologies spread in the United States. (JEL G12, L86, L92, N21, N22, N71, N72)

Suggested Citation

  • Luboš Pástor & Pietro Veronesi, 2009. "Technological Revolutions and Stock Prices," American Economic Review, American Economic Association, vol. 99(4), pages 1451-1483, September.
    • Handle: RePEc:aea:aecrev:v:99:y:2009:i:4:p:1451-83
    Note: DOI: 10.1257/aer.99.4.1451
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.4.1451
    Download Restriction: no
    File URL: http://www.aeaweb.org/aer/data/sept09/20051277_data.zip
    Download Restriction: no
    File URL: http://www.aeaweb.org/aer/data/sept09/20051277_app.pdf
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-347, April.
    2. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    4. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, vol. 64(6), pages 1299-1310, November.
    5. R. Glenn Hubbard, 1991. "Financial Markets and Financial Crises," NBER Books, National Bureau of Economic Research, Inc, number glen91-1, March.
    6. Frederic S. Mishkin, 1991. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Chapters, in: Financial Markets and Financial Crises, pages 69-108, National Bureau of Economic Research, Inc.
    7. Jovanovic, Boyan & Rousseau, Peter L., 2005. "General Purpose Technologies," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 18, pages 1181-1224, Elsevier.
    8. Efraim Benmelech, 2009. "Asset Salability and Debt Maturity: Evidence from Nineteenth-Century American Railroads," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1545-1584, April.
    9. Ľuboš Pástor & Veronesi Pietro, 2003. "Stock Valuation and Learning about Profitability," Journal of Finance, American Finance Association, vol. 58(5), pages 1749-1789, October.
    10. Boyan Jovanovic & Jeremy Greenwood, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, vol. 89(2), pages 116-122, May.
    11. Boyan Jovanovic & Peter L. Rousseau, 2003. "Two Technological Revolutions," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 419-428, 04/05.
    12. John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, vol. 93(4), pages 1240-1267, September.
    13. Lubos PÁstor & Veronesi Pietro, 2003. "Stock Valuation and Learning about Profitability," Journal of Finance, American Finance Association, vol. 58(5), pages 1749-1790, October.
    14. Andrew Atkeson & Patrick J. Kehoe, 2002. "The transition to a new economy after the Second Industrial Revolution," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    15. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    16. Laitner, John & Stolyarov, Dmitriy, 2004. "Aggregate returns to scale and embodied technical change: theory and measurement using stock market data," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 191-233, January.
    17. 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.
    18. David, Paul A., 1989. "COMPUTER AND DYNAMO: The Modern Productivity Paradox in a Not-Too Distant Mirror," Economic Research Papers 268373, University of Warwick - Department of Economics.
    19. Carlota Perez, 2002. "Technological Revolutions and Financial Capital," Books, Edward Elgar Publishing, number 2640.
    20. Mariana Mazzucato, 2002. "The PC Industry: New Economy or Early Life-Cycle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 318-345, April.
    21. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    22. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-1165, December.
    23. Rodolfo E. Manuelli, 2000. "Technological Change, the Labor Market and the Stock Market," NBER Working Papers 8022, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hyunbae Chun & Jung-Wook Kim & Jason Lee & Randall Morck, 2004. "Patterns of Comovement: The Role of Information Technology in the U.S. Economy," NBER Working Papers 10937, National Bureau of Economic Research, Inc.
    2. Rodolfo E. Manuelli & Ananth Seshadri, 2014. "Frictionless Technology Diffusion: The Case of Tractors," American Economic Review, American Economic Association, vol. 104(4), pages 1368-1391, April.
    3. Acemoglu, Daron & Gancia, Gino & Zilibotti, Fabrizio, 2012. "Competing engines of growth: Innovation and standardization," Journal of Economic Theory, Elsevier, vol. 147(2), pages 570-601.3.
    4. Maria Minniti & Martin Andersson & Pontus Braunerhjelm & Frédéric Delmar & Annika Rickne & Karin Thorburn & Karl Wennberg & Mikael Stenkula, 2019. "Boyan Jovanovic: recipient of the 2019 Global Award for Entrepreneurship Research," Small Business Economics, Springer, vol. 53(3), pages 547-553, October.
    5. Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters, in: New Developments in Productivity Analysis, pages 179-224, National Bureau of Economic Research, Inc.
    6. Chun, Hyunbae & Kim, Jung-Wook & Morck, Randall & Yeung, Bernard, 2008. "Creative destruction and firm-specific performance heterogeneity," Journal of Financial Economics, Elsevier, vol. 89(1), pages 109-135, July.
    7. Ward, Colin, 2020. "Is the IT revolution over? An asset pricing view," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 283-316.
    8. Thompson, Peter, 2010. "Learning by Doing," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 429-476, Elsevier.
    9. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 767-796.
    10. Patrick Francois & Huw Lloyd-Ellis, 2005. "I - Q Cycles," Working Paper 1040, Economics Department, Queen's University.
    11. Professor Yong Kim & Univ. Southern California, 2004. "Asset ownership and Asset Values Over Project Lifecycles," Econometric Society 2004 Far Eastern Meetings 604, Econometric Society.
    12. Gangopadhyay, Kausik & Nishimura, Atsushi & Pal, Rupayan, 2016. "Can the information technology revolution explain the incidence of co-movement of skill premium and stock prices?," Economic Modelling, Elsevier, vol. 53(C), pages 107-120.
    13. Hyunbae Chun & Jung-Wook Kim & Randall Morck, 2016. "Productivity growth and stock returns: firm- and aggregate-level analyses," Applied Economics, Taylor & Francis Journals, vol. 48(38), pages 3644-3664, August.
    14. Adriaan Zon & Roberto Antonietti, 2016. "Education and training in a model of endogenous growth with creative wear-and-tear," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(1), pages 35-62, April.
    15. Jovanovic, Boyan & Rousseau, Peter L., 2005. "General Purpose Technologies," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 18, pages 1181-1224, Elsevier.
    16. Comin, Diego & Mestieri, Martí, 2014. "Technology Diffusion: Measurement, Causes, and Consequences," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 565-622, Elsevier.
    17. Dosi, Giovanni & Nelson, Richard R., 2010. "Technical Change and Industrial Dynamics as Evolutionary Processes," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 51-127, Elsevier.
    18. Zoltan J. Acs & Abraham K. Song & László Szerb & David B. Audretsch & Éva Komlósi, 2021. "The evolution of the global digital platform economy: 1971–2021," Small Business Economics, Springer, vol. 57(4), pages 1629-1659, December.
    19. Xiaodong Du & Dermot J. Hayes & Cindy L. Yu, 2010. "Dynamics of Biofuel Stock Prices: A Bayesian Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 418-425.
    20. John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, vol. 93(4), pages 1240-1267, September.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913
    • N72 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: 1913-

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:99:y:2009:i:4:p:1451-83. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.