Stock-market crashes tend to follow run-ups in prices. These episodes look like bubbles that gradually inflate and then suddenly burst. We show that such bubbles can form in a Zeira-Rob type of model in which demand size is uncertain. Two conditions are sufficient for this to happen: A declining...

We model merger waves as reallocation waves, and argue that mergers spread new technology in a way that is similar to that of entry and exit of firms. We focus on two periods: 1890-1930 during which electricity and the internal combustion engine spread through the U.S. economy, and 1971-2001 the...

We find that new firms real investment responds much more elastically to aggregate Tobin s Q than does that of established firms. On the financial side, IPOs respond more elastically to Tobin s Q than seasoned offerings of securities. The explanation seems to be that a high aggregate Q raises...

On news of a takeover, the sum of the stock-market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of...

A new technology or product is often developed by the single entrepreneur. Whether he reaches the initial public offering stage or is acquired by a listed firm, it takes time for the innovator to add value to the stock market. Indeed, the innovation may, at first, reduce the market's value...