Dotcom Extreme Underpricing

Abstract

We conjecture that the Dotcom abnormal underpricing resulted from the emergence a large cohort of firms racing for market leadership/survivorship. Fundamentals pricing at the IPO was part of their strategy. Consistent with our conjecture, firms’ strategic goals and characteristics fully explain the abnormal underpricing. Contrary to alternatives explanations, underpricing was not associated with top underwriting; there was no deterioration of issuers’ quality; and top underwriters and analysts became more selective.

Keywords: Internet bubble, underpricing, spinning, analyst lust, risk composition hypothesis

JEL Classification: G14, G24, L1, O33