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American Economic Review: Vol. 98 No. 4 (September 2008)

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Does Innovation Cause Stock Market Runups? Evidence from the Great Crash

Article Citation

Nicholas, Tom. 2008. "Does Innovation Cause Stock Market Runups? Evidence from the Great Crash." American Economic Review, 98(4): 1370-96.

DOI: 10.1257/aer.98.4.1370

Abstract

This article examines the stock market's changing valuation of corporate patentable assets between 1910 and 1939. It shows that the value of knowledge capital increased significantly during the 1920s compared to the 1910s as investors responded to the quality of technological inventions. Innovation was an important driver of the late 1920s stock market runup, and the Great Crash did not reflect a significant revaluation of knowledge capital relative to physical capital. Although substantial quantities of influential patents were accumulated during the post-crash recovery, high technology firms did not earn significant excess returns over low technology firms for most of the 1930s. (JEL G14, N12, N22, O30)

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Authors

Nicholas, Tom (Harvard U)

JEL Classifications

G14: Information and Market Efficiency; Event Studies
N12: Economic History: Macroeconomics; Growth and Fluctuations: U.S.; Canada: 1913-
N22: Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-
O30: Technological Change; Research and Development: General


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