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Paper Stats:
Abstract Views: 1999
Downloads: 524
Download Rank: 7297
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DotComMania: The Rise and Fall of Internet Stock Prices
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MATTHEW P. RICHARDSON
New York University - Department of Finance; National Bureau of Economic Research (NBER)
ELI OFEK
New York University - Department of Finance
November 6, 2001
NYU Stern Department of Finance, Working Paper No. FIN-01-037
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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.
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JEL Classifications: G
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Working Paper Series
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Suggested Citation
Richardson, Matthew P. and Ofek, Eli, "DotComMania: The Rise and Fall of Internet Stock Prices"
(November 6, 2001).
NYU Stern Department of Finance, Working Paper No. FIN-01-037. Available at SSRN: http://ssrn.com/abstract=293964
or DOI: 10.2139/ssrn.293964
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Contact Information for
MATTHEW
P.
RICHARDSON
(Contact Author)
Email address for MATTHEW
P.
RICHARDSON
New York University - Department of Finance
44 West 4th Street
Suite 9-190
New York
, NY
10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)
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(No e-mail address available for MATTHEW
P.
RICHARDSON
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge
, MA
02138
United States
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Contact Information for
ELI
OFEK
Email address for ELI
OFEK
New York University - Department of Finance
Stern School of Business
44 West 4th Street
New York
, NY
10012-1126
United States
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Dec 17, 2001 |
177K
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