Abstract

http://ssrn.com/abstract=868527
 
 

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Technological Revolutions and Stock Prices


Lubos Pastor


University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Pietro Veronesi


University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

February 12, 2008

CRSP Working Paper No. 606
AFA 2007 Chicago Meetings Paper
EFA 2006 Zurich Meetings

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.

Number of Pages in PDF File: 49

Keywords: bubble, internet, railroads, technology, innovation, learning, uncertainty

JEL Classification: G1

working papers series


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Date posted: May 24, 2006 ; Last revised: February 15, 2008

Suggested Citation

Pastor, Lubos and Veronesi, Pietro, Technological Revolutions and Stock Prices (February 12, 2008). CRSP Working Paper No. 606; AFA 2007 Chicago Meetings Paper; EFA 2006 Zurich Meetings. Available at SSRN: http://ssrn.com/abstract=868527 or http://dx.doi.org/10.2139/ssrn.868527

Contact Information

Lubos Pastor (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4080 (Phone)
773-702-0458 (Fax)
HOME PAGE: http://www.ChicagoGSB.edu/fac/lubos.pastor/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Pietro Veronesi
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-6348 (Phone)
773-702-0458 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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