Dotcom Mania: The Rise and Fall of Internet Stock Prices
Posted: 17 Sep 2003
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.
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