Was There a NASDAQ Bubble in the Late 1990s?

60 Pages Posted: 20 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: December 13, 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 compute the level of uncertainty that is needed to match the observed Nasdaq valuations at their peak. This uncertainty seems plausible because it matches not only the high level but also the high volatility of Nasdaq stock prices. We also show that uncertainty about average profitability has the biggest effect on stock prices when the equity premium is low.

Suggested Citation

Pastor, Lubos and Veronesi, Pietro, Was There a NASDAQ Bubble in the Late 1990s? (December 13, 2004). Available at SSRN: https://ssrn.com/abstract=557061 or http://dx.doi.org/10.2139/ssrn.557061

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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