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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end? -- Ignore unavailable to you. Want to Upgrade?

To: Arcane Lore who wrote (1830)	8/15/1999 1:10:00 PM
From: Arcane Lore	Respond to of 3543

Another symptom of the mania if not the bursting of the bubble: How Dot-Com Makes a Company Smell Sweet By MARK HULBERT A new academic study may finally put to rest the notion, once widely held, that the financial markets efficiently price all securities, all the time. Given the recent carnage in Internet-related stocks, it seems appropriate that the study's case rests on the behavior of a group of stocks whose issuers may have tried too hard to take advantage of Internet mania. ... But this new study, "A Rose.com by Any Other Name," by Michael J. Cooper and P. Raghavendra Rau, assistant professors of finance at Purdue University in West Lafayette, Ind., and one of their graduate students, Orlin Dimitrov, provides evidence of inefficiency that even the most die-hard believers in efficient markets should find hard to dismiss. Cooper and his co-authors studied 63 companies that from the beginning of 1998 to March 26 of this year changed their names to include Web-oriented designations like ".com," ".net" or the word "Internet." On average, over the two weeks after their name changes were announced, the companies saw their shares gain 125 percent more than those of their peers, the study said. The authors were careful to filter out companies whose gain could be attributed to other causes, like a good earnings report or merger rumors. ... It is very difficult to explain away this result. A name change has nothing to do with the profitability of the company. But believers in market efficiency are not likely to give up without a fight. The main argument Cooper anticipates is that the new names may in fact reflect a major shift in business -- that the companies were becoming more involved with the Internet. The rise in their stock prices thus would have nothing to do with the name changes per se but would instead reflect the market's judgment about the profitability of their future Internet business. Because this judgment is not obviously wrong on its face, the market's behavior cannot be used to prove market inefficiency. But the study -- available on the Web at www.mgmt.purdue.edu/mcooper/newpapers/dotcom.pdf -- was designed to pre-empt this argument. It isolated companies in the group whose core businesses have nothing to do with the Internet and then compared their performances with those of the companies in the group whose core businesses were Web-related. If the market was efficient in setting the prices of Internet stocks, the companies with no Internet association should have experienced smaller gains after their name changes. Cooper found no such pattern. On the contrary, there was no difference in the performances of these two groups of rechristened companies. The only possible explanation is that investors have been willing to throw their money at almost anything that claimed an Internet link. ... nytimes.com As noted in the article, the study can be found at mgmt.purdue.edu To read it, you will need Adobe Acrobat Reader (or other similar software). A free download is available at: adobe.com Note that of the 63 companies with new dot-com or dot-net names, all but one were on the OTCBB. Furthermore the single NASDAQ stock included, Speedus.com, is apparently regarded by at least one SIer (the author of the title of #Subject-24697 ) as being of somewhat less than stellar investment quality. Unsurprisingly, the 62 remaining BB companies include a few notorious ones such as USA Talks.com (USAT): sec.gov