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Technological Revolutions and Stock Prices

  • Lubos Pastor
  • Pietro Veronesi

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11876.

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Date of creation: Dec 2005
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Publication status: published as Pastor, Lubos and Pietro Veronesi. "Technological Revolutions and Stock Prices." American Economic Review 99, 4 (2009): 1451-1483.
Handle: RePEc:nbr:nberwo:11876
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  1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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  21. Efraim Benmelech, 2009. "Asset Salability and Debt Maturity: Evidence from Nineteenth-Century American Railroads," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1545-1584, April.
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