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The Role of the Media in the Internet IPO Bubble

Published online by Cambridge University Press:  01 June 2009

Utpal Bhattacharya ,
Neal Galpin ,
Rina Ray  and
Xiaoyun Yu
Utpal Bhattacharya
Affiliation:
Kelley School of Business, Indiana University, 1309 E. 10th St., Bloomington, IN 47405. ubhattac@indiana.edu
Neal Galpin
Affiliation:
Mays Business School, Texas A&M University, 360 Wehner Bldg., College Station, TX 77845. ngalpin@mays.tamu.edu
Rina Ray
Affiliation:
Norwegian School of Economics and Business Administration, Helleveien 30, 5045 Bergen, Norway. rina.ray@nhh.no
Xiaoyun Yu
Affiliation:
Kelley School of Business, Indiana University, 1309 E. 10th St., Bloomington, IN 47405. xiyu@indiana.edu
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Abstract

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.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 3 , June 2009 , pp. 657 - 682
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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