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Dotcom Price Spiral

Author

Listed:
  • Antonio Gledson de Carvalho
  • Roberto Pinheiro
  • Joelson Oliveira Sampaio

Abstract

We show that during the bubble implied growth rates coming from the underpricing of IPO market explains short term returns on the NASDAQ index. This result remains even if we replace actual underprice for others different instruments for underpricing that are based on predetermined variables and not correlated to market returns. We also do placebo tests to assess the relation between underpricing and NASDAQ returns over other periods. We show that growth proxies that are not contaminated by the booms and busts of the stock market are uncorrelated with the returns on the NASDAQ index in periods outside the bubble.

Suggested Citation

  • Antonio Gledson de Carvalho & Roberto Pinheiro & Joelson Oliveira Sampaio, 2017. "Dotcom Price Spiral," Working Papers (Old Series) 1713, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1713
    DOI: 10.26509/frbc-wp-201713
    Note: This paper is one of 2 originally posted as WP 16-33 in December 2016 and titled “The Dotcom Bubble and Underpricing: Conjectures and Evidence.” The original paper (WP 16-33) was split into 2 articles: this one (WP 17-13) and WP 17-14.
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    More about this item

    Keywords

    Internet bubble; underpricing; spinning; analyst lust; risk composition hypothesis;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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