Dotcom Mania: A Survey of Market Efficiency in the Internet Sector
61 Pages Posted: 9 May 2001
Date Written: April 2001
Abstract
This paper provides a survey of some existing as well as new evidence of the relation between market prices and fundamentals in the internet sector over the period January 1998 to February 2000. Appealing to results across a broad class of outcomes, we demonstrate a strong, circumstantial case against market rationality. In particular, we investigate (i) the level of internet stock prices given their underlying fundamentals, (ii) responses of stock prices to information-based events, (iii) internet-related anomalies, and (iv) the volatility of internet prices. As a potential explanation, 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. Empirical support for this model is provided using data from the stock shorting market.
Keywords: Market efficiency, investments, event study, Internet
JEL Classification: G12, G14
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Short Sale Constraints and Stock Returns
By Charles M. Jones and Owen A. Lamont
-
Short Sale Constraints and Stock Returns
By Charles M. Jones and Owen A. Lamont
-
Breadth of Ownership and Stock Returns
By Joseph Chen, Harrison G. Hong, ...
-
Breadth of Ownership and Stock Returns
By Joseph Chen, Harrison G. Hong, ...
-
Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs
By Owen A. Lamont and Richard H. Thaler
-
Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs
By Owen A. Lamont and Richard H. Thaler
-
Limited Arbitrage in Equity Markets
By Mark L. Mitchell, Todd C. Pulvino, ...
-
Dotcom Mania: The Rise and Fall of Internet Stock Prices
By Eli Ofek and Matthew P. Richardson
-
Dotcom Mania: The Rise and Fall of Internet Stock Prices
By Eli Ofek
-
Dotcom Mania: The Rise and Fall of Internet Stock Prices
By Eli Ofek and Matthew P. Richardson