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The information technology revolution and the stock market: preliminary evidence

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  • 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.

Suggested Citation

  • Bart Hobijn & Boyan Jovanovic, 2000. "The information technology revolution and the stock market: preliminary evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Apr.
  • Handle: RePEc:fip:fedfpr:y:2000:i:apr:x:2
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    Cited by:

    1. Watanabe, Chihiro & Yong Hur, Jae & Lei, Shanyu, 2006. "Converging trend of innovation efforts in high technology firms under paradigm shift--a case of Japan's electrical machinery," Omega, Elsevier, vol. 34(2), pages 178-188, April.
    2. Siebert, Horst, 2000. "The new economy - what is really new?," Kiel Working Papers 1000, Kiel Institute for the World Economy (IfW).
    3. Argandoña, Antonio, 2002. "Ethical challenges of the new economy: An agenda of issues," IESE Research Papers D/463, IESE Business School.
    4. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
    5. Argandoña, Antonio, 2001. "Nueva economía y el crecimiento económico, La," IESE Research Papers D/437, IESE Business School.
    6. Nathan S. Balke & Mark E. Wohar, 2002. "Low-Frequency Movements in Stock Prices: A State-Space Decomposition," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 649-667, November.
    7. 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.
    8. 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.
    9. Lars Jonung, 2005. "Proceedings of the 2004 first annual DG ECFIN research conference on “Business Cycles and Growth in Europeâ€," European Economy - Economic Papers 2008 - 2015 227, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. Anderson, Keith & Brooks, Chris & Katsaris, Apostolos, 2010. "Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector?," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 345-361, June.
    11. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, EconWPA.

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    Keywords

    Information technology ; Stock market;

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