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DotCom Mania: The Rise and Fall of Internet Stock Prices

Authors

  • Eli Ofek,

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    • Stern School of Business, New York University and Stern School of Business, New York University and NBER, respectively. We would like to thank an anonymous referee, Rick Green (the editor), Ken French (the NBER discussant), Stewart Myers, Jay Ritter, Jeremy Stein, Robert Whitelaw, and participants at MIT, NYU, the NBER summer institute, New York Federal Reserve, the DRP conference, and the SQA seminar series for helpful comments and suggestions.
  • Matthew Richardson

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    • Stern School of Business, New York University and Stern School of Business, New York University and NBER, respectively. We would like to thank an anonymous referee, Rick Green (the editor), Ken French (the NBER discussant), Stewart Myers, Jay Ritter, Jeremy Stein, Robert Whitelaw, and participants at MIT, NYU, the NBER summer institute, New York Federal Reserve, the DRP conference, and the SQA seminar series for helpful comments and suggestions.

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.

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