Probelm set 7

Probelm set 7 - internet, as long as the firms changed the...

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Jie Cai 12/2/09 Problem Set 7 The stock price of internet related firms skyrocketed during the period of .com boom, From study, it finds that the average firm experienced stock price appreciation of about 40% over the week to 10days before the “dot-com” name change announcement, and in the few days around the announcement, the average firm saw its share price continued to trade at new highly elevated level. Clearly, changing of name didn’t improve the earning or at least wouldn’t be that dramatic of improvement in earning as comparing to the appreciation of stock price. Yet, the same pattern happened in both kinds of companies, whose core business is web-related or has nothing to do with
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Unformatted text preview: internet, as long as the firms changed the name to .com, their share price elevated. The equity value of web-related firms inflated a lot during the period. The share price was clearly unreasonable and the investors werent rational. They would pay whatever price in order to invest in web or .com firms. Since the share price of other internet firms was already skyrocketed, it was highly likely to see the stock market over-valued the web-related IPO. Plus, a change of name to .com brought a 40% increase in stock price to a non-web-related firm; the over-value of a real web-based IPO would be even greater....
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This note was uploaded on 02/18/2010 for the course FBE FINANCE taught by Professor Callahan during the Fall '09 term at USC.

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