Technological Revolutions and Stock Prices
American Economic Review · 2009 · Volume 99 · Issue 4
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)
Keywords
Asset Pricing, Trading volume, Bond Interest Rates, Information and Internet Services, Computer Software, Railroads and Other Surface Transportation, Economic History: Financial Markets and Institutions: U.S., Canada: Pre-1913, Canada: 1913-, Economic History: Transport, Trade, Energy, Technology, and Other Services: U.S.
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