Lecture #13 - Ec 136, Financial Economics Lecture 13...

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Ec 136, Financial Economics Lecture 13 October 13
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Outline for today 1. Valuation of internet stocks. 2. Valuation ratios and the stock market outlook www.econ.berkeley.edu/~szeidl/ec136/ec136index.htm Problem set 4 : due today.
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1. Valuation of internet stocks During the late 1990s, many Internet stocks had incredibly high P=E ratios. Steep decline of Internet stock prices convinced most people that valuations were not sensible. Could we make that judgement during the boom? { Ofek and Richardson: \The Valuation and Market Rationality of Internet Stock Prices" Assume about internet companies: { for next T years, ROE new very high { during this period, pay zero dividends { After T years, mature and have old-economy P=E
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from Ofek and Richardson Cumulative returns: equaly weighted internet index, S&P 500, NASDAQ 0 200 400 600 800 1000 1200 12/31/1997 2/28/1998 4/30/1998 6/30/1998 8/31/1998 10/31/1998 12/31/1998 2/28/1999 4/30/1999
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This note was uploaded on 09/02/2010 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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Lecture #13 - Ec 136, Financial Economics Lecture 13...

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