DotCom Mania: The Rise and Fall of Internet Stock Prices / Eli Ofek, Matthew Richardson.

Format:

Book

Author/Creator:

Ofek, Eli.

Contributor:

National Bureau of Economic Research.

Richardson, Matthew.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8630.

NBER working paper series no. w8630

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

DotCom Mania

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

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.

Notes:

Print version record

December 2001.