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Working Paper

Dotcom Extreme Underpricing

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We conjecture that the Dotcom abnormal underpricing resulted from the emergence a large cohort of firms racing for market leadership/survivorship. Fundamentals pricing at the IPO was part of their strategy. Consistent with our conjecture, firms’ strategic goals and characteristics fully explain the abnormal underpricing. Contrary to alternatives explanations, underpricing was not associated with top underwriting; there was no deterioration of issuers’ quality; and top underwriters and analysts became more selective.
Topics
Financial markets
07.25.2017ISSN 2573-7953 WP 17-14DOI 10.26509/frbc-wp-201714
Keywords internet bubble, underpricing, spinning, analyst lust, risk composition hypothesis
JEL Classification Codes G14, G24, L1, O33

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Note: This paper is one of two 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: WP 17-13 and this one (WP 17-14).

Suggested Citation

Carvalho, Antonio Gledson de, Roberto B. Pinheiro, and Joelson Oliveira Sampaio. 2017. “Dotcom Extreme Underpricing.” Federal Reserve Bank of Cleveland, Working Paper No. 17-14. https://doi.org/10.26509/frbc-wp-201714