Dotcom Bubble Analysis

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Register to read the introduction… Indeed, dividend returns did not increase by as much as prices during the 90s. In fact, some of the more ‘desirable’ shares in dotcom companies paid significantly less than their brick and mortar equivalent. Also, theoretically, it is often that the underlying cause for any observed coordination between prices and dividends are in fact the same factors. Managers of companies choose the rate at which dividends are paid out, but managers are just another portion of the investing public, and they will use any feelings of optimism to influence their decisions, so, concurrent dividends and prices are not necessarily only a manifestation of a rational market.

     An alternative approach to
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I think there at least some of the causes must originate from a rational framework, but I also think that they alone are not convincing enough; one has to invoke some irrational exuberance in order to explain the bullish stock market during the late 90s.

     Psychological experience shows that there are patterns of behaviour in the stock market which cannot be contributed to ignorance, but which nevertheless cannot be classed as rational behaviour. People tend to use past prices as anchors for predicting present prices, so when certain shares are seen as valuable, people tend to regard them as increasing in value. This obviously creates a feedback loop, leading to the bubbles. Also, herd behaviour can dictate how an individual will react. People tend to follow their contemporaries, because we all find it difficult to doubt something in which many others believe. Again, this creates the feedback loop that can lead to speculative

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