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Was There a Nasdaq Bubble in the Late 1990s?

Author

Listed:
  • Pietro Veronesi
  • Lubos Pastor

    (Finance, Graduate School of Business University of Chicago)

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 show that the uncertainty needed to match the observed Nasdaq valuations at their peak is high but plausible. The high uncertainty might also explain the unusually high return volatility of Nasdaq stocks in the late 1990s. Uncertainty has the biggest effect on stock prices when the equity premium is low.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Pietro Veronesi & Lubos Pastor, 2005. "Was There a Nasdaq Bubble in the Late 1990s?," 2005 Meeting Papers 95, Society for Economic Dynamics.
    • Handle: RePEc:red:sed005:95
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    JEL classification:

    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets

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