TY  - JOUR
AU  - Ofek, Eli
AU  - Richardson, Matthew
TI  - DotCom Mania: The Rise and Fall of Internet Stock Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8630
PY  - 2001
Y2  - December 2001
DO  - 10.3386/w8630
UR  - http://www.nber.org/papers/w8630
L1  - http://www.nber.org/papers/w8630.pdf
N1  - Author contact info:
Eli Ofek
Stern School of Business
New York University
44 West 4th Street, Suite 9-190
New York, NY 10012
Tel: 212/998-0356
Fax: 212/995-4233
E-Mail: eofek@stern.nyu.edu

Matthew P. Richardson
Stern School of Business
New York University
44 West 4th Street, Suite 9-190
New York, NY 10012
Tel: 212/998-0349
Fax: 212/995-4233
E-Mail: mrichar0@stern.nyu.edu
AB  - This paper provides one potential explanation for the rise, persistence and eventual fall of internet stock prices. Specifically, 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 about cash flows summarized by aggregate beliefs. Empirical support for this explanation is provided by exploring the behavior of internet stock prices during the period January 1998 to November 2000. In particular, we document four important elements to our story: (i) the high level of internet stock prices given their underlying fundamentals, (ii) responses of stock prices to a shift towards potentially optimistic investors, (iii) empirical results consistent with shorting being at its maximum possible level for internet stocks, and (iv) the eventual fall, or bubble bursting, of internet stocks being tied to the increase in the number of sellers to the market via expiration of lockup agreements.
ER  -