Technological Revolutions and Stock Prices

Lubos Pastor and Pietro Veronesi

American Economic Review, 2009, vol. 99, issue 4, 1451-83

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)

JEL-codes: G12 L86 L92 N21 N22 N71 N72 (search for similar items in EconPapers)
Date: 2009
Note: DOI: 10.1257/aer.99.4.1451
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Citations: View citations in EconPapers (173)

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Working Paper: Technological Revolutions and Stock Prices (2005)
Working Paper: Technological Revolutions and Stock Prices (2005)
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