The Information Technology Revolution and the Stock Market: Evidence

39 Pages Posted: 21 May 2000 Last revised: 5 Oct 2014

See all articles by Bart Hobijn

Bart Hobijn

ASU

Boyan Jovanovic

New York University - Department of Economics

Date Written: May 2000

Abstract

Since 1968, the ratio of stock market capitalization to GDP has varied by a factor of 5. In 1972, the ratio stood at above unity, but by 1974, it had fallen to 0.45 where it stayed for the next decade. It then began a steady climb, and today it stands above 2. We argue that the IT revolution was behind this and, moreover, that the capitalization/GDP ratio is likely to decline and then rise after any major technological shift. The three assumptions that deliver the result are: 1. The IT revolution was anticipated by early 1973, 2. IT was resisted by incumbents, which led their value to fall, and 3. Takeovers are an imperfect policing device that allowed many firms to remain inefficient until the mid-1980's. We lay out some facts that the IT hypothesis explains, but that some alternative hypotheses -- oil-price shocks, increased market volatility, and bubbles -- do not.

Suggested Citation

Hobijn, Bart and Jovanovic, Boyan, The Information Technology Revolution and the Stock Market: Evidence (May 2000). NBER Working Paper No. w7684. Available at SSRN: https://ssrn.com/abstract=228157

Bart Hobijn

ASU ( email )

501 E. Orange Street
Tempe, AZ 85287-9801
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(480)-965-0215 (Phone)

HOME PAGE: http://www.barthobijn.net

Boyan Jovanovic (Contact Author)

New York University - Department of Economics ( email )

19 w 4 st.
New York, NY 10012
United States

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