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American Economic Review Vol. 91 No. 5 2001

The Information-Technology Revolution and the Stock Market: Evidence

Bart Hobijn1; Boyan Jovanovic2

1 Federal Reserve Bank of New York, Domestic Research, 3rd Floor, 33 Liberty Street, New York, NY 10045. · 2 Department of Economics, University of Chicago, 1126 East 59th Street, Chicago, IL 60637, and New York University.

Abstract

Why did the stock market decline so much in the early 1970's and remain low until the early 1980's? 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-1980's. Investors foresaw this in the early 1970's 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.

DOI
10.1257/aer.91.5.1203
Volume
91
Issue
5
Pages
1203-1220
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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