Stock prices associated with emerging technologies often exhibit characteristics resembling economic “bubbles,” a phenomenon observed during the spread of both railroad technology in the 19th century and the internet in the late 20th and early 21st, according to research published in 2009 by economists Ľuboš Pástor and Pietro Veronesi.
The research, initially appearing in the American Economic Review and subsequently presented as a working paper by the National Bureau of Economic Research, details a general equilibrium model where stock prices of innovative firms inflate during periods of technological revolution. This inflation isn’t necessarily indicative of overvaluation, but rather a consequence of uncertainty surrounding the ultimate productivity of the new technology.
Pástor and Veronesi found that the nature of uncertainty shifts during these revolutions, moving from being specific to individual firms to becoming systematic – affecting the entire sector. This shift contributes to the observed price bubbles. The bubbles, they argue, are observable after the fact but are difficult to predict in advance.
The model suggests that technologies characterized by high uncertainty and rapid adoption are most prone to these pronounced price fluctuations. The researchers supported their model with empirical data from the period of railroad expansion (1830-1861) and the rise of the internet (1992-2005) in the United States.
A 2020 analysis by PWL Capital noted one practical implication of this research: understanding the dynamics of these bubbles is crucial when considering investment strategies related to new technologies.
Recent analysis from December 1, 2025, indicates that historical patterns surrounding technological revolutions do not consistently result in significant stock market declines, challenging some conventional investment wisdom.
The original research acknowledged contributions from a range of economists, including Sreedhar Bharath, Markus Brunnermeier and Judy Chevalier, as well as input from numerous academic institutions including Dartmouth College, Harvard University, and the London School of Economics. Research assistance was provided by Shastri Sandy.
