Technological Revolutions and Stock Prices

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 uncerta...

Full description

Saved in:
Bibliographic Details
Published inThe American economic review Vol. 99; no. 4; pp. 1451 - 1483
Main Authors Pástor, Ľuboš, Veronesi, Pietro
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.09.2009
Subjects
Applied economics
Biotechnology
Discount rates
Economic bubbles
Economic impact analysis
Economic modeling
Economic models
Economic uncertainty
Emerging technology
Equilibrium
General economic equilibrium
Innovation diffusion
Internet
New technology
Prices
Productivity
Stock exchanges
Stock prices
Studies
Technological change
Technological revolutions
Technology
Uncertainty
Volatility
United States > US
Online AccessGet full text

Cover

More Information
Summary: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.
Bibliography:SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 14
ObjectType-Article-2
content type line 23
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.99.4.1451