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American Economic Review: Vol. 99 No. 4 (September 2009)

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Technological Revolutions and Stock Prices

Article Citation

Pástor, Ľuboš, and Pietro Veronesi. 2009. "Technological Revolutions and Stock Prices." American Economic Review, 99(4): 1451-83.

DOI: 10.1257/aer.99.4.1451

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)

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Authors

Pástor, Ľuboš (U Chicago)
Veronesi, Pietro (U Chicago)

JEL Classifications

G12: Asset Pricing; Trading volume; Bond Interest Rates
L86: Information and Internet Services; Computer Software
L92: Railroads and Other Surface Transportation
N21: Economic History: Financial Markets and Institutions: U.S.; Canada: Pre-1913
N22: Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-
N71: Economic History: Transport, Trade, Energy, Technology, and Other Services: U.S.; Canada: Pre-1913
N72: Economic History: Transport, Trade, Energy, Technology, and Other Services: U.S.; Canada: 1913-


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