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American Economic Review: Vol. 91 No. 5 (December 2001)

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The Information-Technology Revolution and the Stock Market: Evidence

Article Citation

Hobijn, Bart, and Boyan Jovanovic. 2001. "The Information-Technology Revolution and the Stock Market: Evidence." American Economic Review, 91(5): 1203-1220.

DOI: 10.1257/aer.91.5.1203

Abstract

Why did the stock market decline so much in the early 1970s and remain low until the early 1980s? We argue that it was because information technology arrived on the scene and the stock-market incumbents of the day were not ready to implement it. Instead, new firms would bring in the new technology after the mid-1980s. Investors foresaw this in the early 1970s and stock prices fell right away. In our model, new capital destroys old capital, but with a lag. The prospect of this causes the value of the old capital to fall right away.

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Authors

Hobijn, Bart (Federal Reserve Bank of New York)
Jovanovic, Boyan (U Chicago and NYU)

JEL Classifications

G12: Asset Pricing; Trading volume; Bond Interest Rates
O33: Technological Change: Choices and Consequences; Diffusion Processes


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