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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27424
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| Title: | DotCom Mania: The Rise and Fall of Internet Stock Prices |
| Authors: | Ofek, Eli
Richardson, Matthew |
| Issue Date: | 2001 |
| Series/Report no.: | S-AM-01-05 |
| Abstract: | This paper provides one potential explanation for the rise, persistence
and eventual fall of internet stock prices. Specifically, we appeal to a
model of heterogenous agents with varying degrees of beliefs about asset
payoffs who are subject to short sales constraints. In this framework,
it is possible that “optimistic” investors overwhelm
“pessimistic” ones, leading to prices not reflecting
fundamental values about cash flows summarized by aggregate beliefs.
Empirical support for this explanation is provided by exploring the
behavior of internet stock prices during the period January 1998 to
November 2000. In particular, we document four important elements to our
story: (i) the high level of internet stock prices given their
underlying fundamentals, (ii) responses of stock prices to a shift
towards potentially optimistic investors, (iii) empirical results
consistent with shorting being at its maximum possible level for
internet stocks, and (iv) the eventual fall, or bubble bursting, of
internet stocks being tied to the increase in the number of sellers to
the market via expiration of lockup agreements. |
| URI: | http://hdl.handle.net/2451/27424 |
| Appears in Collections: | Asset Management
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