 The Internet Bubble Crash, 2000–2002William T Ziemba Chapter 23 in The Adventures of a Modern Renaissance Academic in Investing and Gambling, 2017, pp 267-269 from World Scientific Publishing Co. Pte. Ltd. Abstract: The US stock market had a big run from 1995 to 1999. The low interest rate policy of Fed chief Alan Greenspan with the attendant the so-called Greenspan put helped feed the rally. That put was the belief that if the stock market declined, Greenspan would initiate policies to prop it back up. In 2016, there seemed to be a Yellen put with very different, virtually zero interest rates. The January 1995 S&P500 as 470.42 with a price earnings ratio of 17.10, a long 30-year bond had a high 8.02% and an earnings yield of 5.85% so the BSEYD model was at 2.17, well below the 3.00 needed to be in the danger zone. By April 1999 the S&P500 had ballooned to 1335.18, a tripling of its value. The long bond had dropped by the Greenspan policies to 5.82%. The BSEYD was then just into the danger zone at 3.03. So the stage was set for a crash. The internet crash was on. Stocks with no earnings were trading with huge market values. Naive professors were trying to use faulty models to justify the high prices. So, unfortunately, their conclusion was disproved when the internet crash occurred… Keywords: Financial History; Risk Management; Investment Strategies; Mean Reversion; Risk Arbitrage; Management of Assets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789813148529_0023 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd. |
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