Dotcom Price Spiral
Original Paper: WP 16-33
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.
JEL codes: G14, G24, L1, O33.
Keywords: Internet bubble, underpricing, spinning, analyst lust, risk composition hypothesis.
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.
Suggested citation: Carvalho, Antonio Gledson de, Roberto B. Pinheiro, and Joelson Oliveira Sampaio, “Dotcom Price Spiral,” Federal Reserve Bank of Cleveland, Working Paper no. 17-13. https://doi.org/10.26509/frbc-wp-201713.