Technological Revolutions and Stock Prices

Lubos Pastor and Pietro Veronesi

No 11876, NBER Working Papers from National Bureau of Economic Research, Inc

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-codes: G1 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-dge, nep-fin, nep-fmk and nep-ino
Note: AP
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Citations: View citations in EconPapers (17)

Published as Pastor, Lubos and Pietro Veronesi. "Technological Revolutions and Stock Prices." American Economic Review 99, 4 (2009): 1451-1483.

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Journal Article: Technological Revolutions and Stock Prices (2009)
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