Dotcom Mania: The Rise and Fall of Internet Stock Prices

Posted: 17 Sep 2003

See all articles by Eli Ofek

Eli Ofek

New York University (NYU) - Department of Finance

Matthew P. Richardson

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

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Abstract

This paper explores a model based on agents with heterogeneous beliefs facing short sales restrictions, and its explanation for the rise, persistence, and eventual fall of Internet stock prices. First, we document substantial short sale restrictions for Internet stocks. Second, using data on Internet holdings and block trades, we show a link between heterogeneity and price effects for Internet stocks. Third, arguing that lockup expirations are a loosening of the short sale constraint, we document average, long-run excess returns as low as -33 percent for Internet stocks post lockup. We link the Internet bubble burst to the unprecedented level of lockup expirations and insider selling.

Suggested Citation

Ofek, Eli and Richardson, Matthew P., Dotcom Mania: The Rise and Fall of Internet Stock Prices. Journal of Finance, Vol. 58, pp. 1113-1138, June 2003. Available at SSRN: https://ssrn.com/abstract=411139

Eli Ofek (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Matthew P. Richardson

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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