Was There a NASDAQ Bubble in the Late 1990s?

53 Pages Posted: 12 Aug 2004

See all articles by Lubos Pastor

Lubos Pastor

University of Chicago - Booth School of Business

Pietro Veronesi

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2004

Abstract

Not necessarily. The fundamental value of a firm increases with uncertainty about average future profitability, and this uncertainty was unusually high in the late 1990s. We calibrate a stock valuation model that includes this uncertainty, and show that the uncertainty needed to match the observed Nasdaq valuations at their peak is high but plausible. The high uncertainty might also explain the unusually high return volatility of Nasdaq stocks in the late 1990s. Uncertainty has the biggest effect on stock prices when the equity premium is low.

Keywords: Bubble, valuation, uncertainty

JEL Classification: G12

Suggested Citation

Pastor, Lubos and Veronesi, Pietro, Was There a NASDAQ Bubble in the Late 1990s? (July 2004). Available at SSRN: https://ssrn.com/abstract=575561

Lubos Pastor (Contact Author)

University of Chicago - Booth School of Business ( email )

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Pietro Veronesi

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-6348 (Phone)
773-702-0458 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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