What is it about?
We read all news items that came out between 1996 and 2000 on 458 Internet initial public offerings (IPOs) and a matching sample of 458 non-Internet IPOs (a total of 171,488 news items) and classify each news item as good news, neutral news, or bad news. We first document that the media were more positive for Internet IPOs in the period of the dramatic rise in share prices and more negative for Internet IPOs in the period of the dramatic fall in share prices. We then document that media hype is unable to explain the Internet bubble: A 1,646% difference exists in returns between Internet stocks and non-Internet stocks from January 1, 1997, through March 24, 2000 (the market peak), and the media can explain only 2.9% of that.
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Why is it important?
Nobel-Prize winning economist, Robert Shiller, in a chapter in his famous book called "Irrational Exuberance" makes the claim that media hype was one reason for the dot.com bubble of 1998-2000. We formally examine the claim. We find that there was a lot of media hype, but the hype cannot explain the bubble.
Perspectives
I was introduced to the bubble literature while writing this paper. This motivated me to organize a conference on this topic. Also, with the wisdom of hindsight, I find it quaint that we examined media for sentiment by actually reading the articles. These days they do it by "machine learning". The paper was featured in the New York Times on March 25, 2009.
Professor Utpal Bhattacharya
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: The Role of the Media in the Internet IPO Bubble, Journal of Financial and Quantitative Analysis, June 2009, Cambridge University Press,
DOI: 10.1017/s0022109009990056.
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