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DotCom Mania: The Rise and Fall of Internet Stock Prices

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  • Eli Ofek
  • Matthew Richardson

Abstract

This paper explores a model based on agents with heterogenous beliefs facing short sales restrictions, and its explanation for the rise, persistence, and eventual fall of Internet stock prices. First, we document substantial short sale restrictions for Internet stocks. Second, using data on Internet holdings and block trades, we show a link between heterogeneity and price effects for Internet stocks. Third, arguing that lockup expirations are a loosening of the short sale constraint, we document average, long‐run excess returns as low as −33 percent for Internet stocks postlockup. We link the Internet bubble burst to the unprecedented level of lockup expirations and insider selling.

Suggested Citation

  • Eli Ofek & Matthew Richardson, 2003. "DotCom Mania: The Rise and Fall of Internet Stock Prices," Journal of Finance, American Finance Association, vol. 58(3), pages 1113-1137, June.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:3:p:1113-1137
    DOI: 10.1111/1540-6261.00560
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