The new great bubble in the technology industry?

ABSTRACT

We assess the presence of a modern bubble in the technology industry, by performing an empirical analysis on an 18-year timeframe from 2000 to 2017. We test to what extent the modern NASDAQ Composite Index can be compared to the one that suffered the Dot.Com bubble in 2000. On the one hand, results show that market multiples led to a partially positive view, given that even if P/E ratios remain on levels above market average, valuations seem to be much more reasonable compared to the dot-com era. On the other hand, the index has strongly outperformed its main US peers such as the S&P 500 and the Dow Jones. Furthermore, after 2008, we observe a weakening relationship between market prices and accounting fundamentals in the technology sample. We identify three main drivers that might have caused this phenomenon: the Federal Reserve’s expansionary monetary policy, retail investors overweight to stocks and investors’ irrational behaviour.

KEYWORDS:

• Technology
• bubble
• financial crisis
• performance

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Emanuele Teti

Emanuele Teti is an assistant professor at the University of Pisa and an adjunct professor at Bocconi University and Affiliate professor at SDA Bocconi School of Management, Milan.

Davide Maroni

Davide Maroni is a previous researcher in Bocconi University, Milan and now Corporate & Investment Banking Analyst at Citi.