...The Dot-Com Crash of 2000 Case Study 1. What is the intended role of each of the institutions and intermediaries discussed in the case for the effective functioning of capital markets? The intended role of each of the institutions and intermediaries are shown in Exhibit 10, with the idea that the overall structure and individual roles are working as a whole to facilitate the capital flow from the investors to the companies. 2. Are their incentives aligned properly with their intended role? Whose incentives are most misaligned? No. As indicated in Exhibit 10, the overall structure and individual roles are working as a whole to facilitate the capital flow from the investors to the companies. If we need to have this market operation in a "clean" way, the incentives of the intermediaries should not be directly related to the short term gains from this capital flow. However, in real life, that is not the case. The one intermediary whose incentives are most misaligned can be the money managers. Though it is true sometimes they are under pressure from "greedy" investors, it can be true that, in most of the cases, they are the one who build up the bubble (willingly or unwillingly), due to the fact that, the incentives they received are directly from their short term (e.g. quarter or annual) performance, against the market benchmark or other money managers. 3. Who, if anyone, was primarily responsible for the Internet stock bubble? My view is that, economic bubbles are part of...
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...The first crash that stock in U.S has spent was the time in the the Great Depression. The United State economy entered the Great Depression in 1929, many industries have collapsed. But at the first, stock had continued to rise and reached to the highest number of share ever. When consumer confidence disappeared in the wake of the collapse of the stock market, the decline in investment spending and factory leaders and other businesses to slow production, construction and start firing their employees. For those who were lucky to still work, salary reduction and reduced purchasing power. Many Americans are forced to buy on credit falling into debt, and the number of foreclosures and repossessions rising continuously. Adherence to the gold standard, joining countries around the world in a fixed currency exchange, help spread the crisis from the United States throughout the world, especially in Europe. The second time was in 1987. In the crash of 1987, this...
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...Dot-Com Bubble Table of Contents Abstract ................................................................................................................................................... 3 Introduction ............................................................................................................................................. 4 Causes ..................................................................................................................................................... 4 Effects ..................................................................................................................................................... 5 Lessons learnt.......................................................................................................................................... 7 Conclusion .............................................................................................................................................. 7 Appendix ................................................................................................................................................. 8 Reference List ......................................................................................................................................... 9 Abstract This report presents an analysis of a stock market bubble, well known as “dot-com bubble”, which developed roughly during a period from 1995 to 2000, and ended up in 2001. The report discusses...
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...World Wide Web History Bubble History of the WWW ECOM 210 World Wide Web History Introduction Founded in 1989 the World Wide Web went from an impossible idea to a worldwide phenomenon that has fused itself into the needs of the people. I remember years ago when computers were just those gross green screened monitors that only allowed you to type a report. Now with the help of the internet our use of computer technology has reached amazing heights. We can reach people around the world with just a click of a mouse. “The web has changed the world. It has arguably become the most powerful communication medium the world has ever known” (webfoundation.org). Reading the webs history helps me to really see how the development of this great tool has geared us to an era of becoming completely technically inclined. The web is available everywhere you go from restaurants to coffee shops also with it being a feature on your mobile device it never leaves the side of the consumer. Internet access has become just as much of a need as toilet paper. In most cases jobs, schools and so on has built there curriculum and foundation around it. Without the web we would not have achieved the ability to have direct access to our bank accounts via applications or to send an email picture of friends and family to others around the globe. Although I grew up in the early 80’s at the peak of technology before the internet even existed I now cannot imagine a world without it. “The Internet is...
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...The Dot-Com Crash 1. What is the intended role of each of the institutions and intermediaries discussed in the case for the effective functioning of capital markets? Venture Capitalists VCs have several intended roles in order for capital markets to function effectively. First of all, VCs provide needed financing for startup companies and, also, build strong platform for further financing. Since it is difficult for new companies to raise capital in public markets, VCs are necessary intermediaries. Another role of VCs is to determine good business models and ideas worth investing from bad ones. They need to identify startups that have high potential to become great solid companies and provide high returns for their investors. Therefore, most venture capitalists are savvy professionals with the backgrounds in corporate finance, investment, and management. Investment Bank Underwriters Main role of investment bank underwriters is to provide their expertise and financial services, such as price IPO or underwrite shares, when a company wants to go public. In addition, since most investment banks are well-known institutions with good reputations they play significant role in introducing new companies to investors. Sell-Side Analysts As the name speaks for itself, the central focus of these intermediaries is to conduct and then publish research on public companies. A sell-side analyst closely studies a company of interest and based on his or her findings makes...
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...Virtually everyone is aware of the infamous "dot-com" crash in early 2000. However, not everyone is as conscious of the telecom bust. According to the editorial of The Economist, The Great Telecoms Crash, "The telecoms bust is some ten times bigger than the dot-com crash: the rise and fall of telecoms may indeed qualify as the largest bubble in history." Companies caught up in the telecommunications industry were forced to take huge debt write-offs and even resorted to fraudulent accounting tricks as displayed by WorldCom (Economist). Being involved in the manufacturing segment of the telecom market, one can witness first hand the results of the crash, including massive layoffs, hostile corporate take-over, and enormous company debt. Many top managers and front-line supervisors were so consumed with demands, changes and challenges of the exponential growth of the telecom market that portions of the four functions of management were short-circuited, that which are planning, organizing, directing and controlling. The first function for managers at all levels is to engage in planning. Planning involves devising a scheme for attaining the goals of the organization. The key matter in accomplishing the goals set forth in the planning process is configuring the work of the organization. Organizing is defined as gathering and arranging the necessary resources. These resources can be human, financial, physical, or informational to carry out the plan. In order for those resources to be...
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...Articles posted under the Course Documents on the Blackboard: 1. The Institutional Yes: An Interview with Jeff Bezos 2. “Amid the Gloom, an E-Commerce War” New York Times, October 12, 2008 Assignment Questions: 1. Consider the challenges facing the company. As a member of the Amazon.com board of directors in early 2001, what actions would you take? 3 pts. I would not have partnered with the dot-com retailers because they didn’t need topartner with another dot-com realtor it was a good move to partner with companys that need the partnership. 2. Do you agree with the decision to pursue the Toys “R” Us deal? Why did the company do the deal? Should they do more deals like this? What impact does the Toys “R” US deal have on Amazon.com’s business model in early 2000? What is the present status of relationship between Toys “R” Us and Amazon.com? Provide your comments. 5 pts. The deal with Toys “R” Us were brought upon as a result of Amazon.com reevaluating its business model due to the dot-com crash and declaring bankruptcy. They made a decision not to partner with anymore dot-com retailers but to lean towards the traditional retailers. I do agree with the decision that was made to pursue the deal with Toys “R” Us because it brought expansion to Amazon.com’s business model as a logistics services provider. The objective was helping traditional retailers that desired to develop its online retailing systems capabilities while upgrading and enabling its distribution and nourishing...
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...always tried to expand the customer base by merging with the other online store and getting equity partnerships from other online retailers. Nevertheless he hired the best people which helped him to get over the hard times of dot-com burst. 2. If you look at the case, there were many strategies taken by Bezos from time to time from its evolution. At first after amazon.com was launched, he has launched new categories and he expanded his business globally and entered Europe market. For more investment he made the company public. Then later, Auctions and commerce network was launched. In 2000, to expand his market place business, he took equity partnerships of online retails and at last, the step taken by him was merging with the “Toys R Us” to overcome the dot-com burst. The company met enormous stress from Wall Street and the company’s stake holders to accomplish profitability. As of 1997 to 2000, the Total verge raised from 29 million to 655 million. Nevertheless, the operational expenditures too grew swiftly, from 61 million to 1519 million. 3. By late 2000, living.com and Pets.com had succumbed to the dot-com crash and had declared bankruptcy which caused Amazon.com executives to reevaluate the company's business model. Rather than partner with dot-com retailers, attention shifted to traditional retailers that wished to develop online...
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...Objective: To discuss the role of capital market intermediaries in the dot-com of 2000 and to check whether their incentives were properly aligned with their intended roles. Observation: This case mainly describes the dot-com bubble and discusses the underlying causes of the bubble burst. It was primarily caused due to the speculation by intermediaries such as investors, accountants, lawyers, regulatory bodies, investment banks, venture capitalists, and money management firms of the value of the rapidly growing Internet sector and e-business. These intermediaries wanted big ideas more than a solid business plan from a company. The IPOs of internet companies emerged with ferocity and frequency, sweeping the nation up in euphoria. Soon, speculators were barely able to control their excitement over the "new economy." Investors were blindly grabbing every new issue without even looking at a business plan to find out, for example, how long the company would take before making a profit, if ever. Obviously, there was a problem. Some of the analysts at the firm began to recommend companies simply because they knew that the stock prices would go up, even though they were clearly overvalued. Plenty of venture capital created an environment in which these businesses dismissed standard business models, where businesses were running on losses yet forecasted as good investments. Finally, a slowdown in e-business spending from large corporate clients prompted many analysts to downgrade most...
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...Cards Crisis The political and economic environment described in the House of Cards video is characterized by events leading up to the financial crisis the United States experienced in in the early 2000s. The crisis is credited to events such as, the burst of the Dot Com Bubble, which lead to a market crash that put the American economy in a recession; and the controversy that surrounded Government Sponsored Enterprises, which lead the American people to lose trust in it’s government’s financial institutes. However, people such as, Ben Bernanke and Alan Greenspan have helped the United States recover from this crisis by implementing new guidelines for the financial market. According to Cashzilla.com, the Internet bubble described in summary was “a rapid rise in equity markets fueled by investments in Internet-based companies. During the dot com bubble of the late 1990s, the value of equity markets grew exponentially, with the technology-dominated Nasdaq index rising from under 1,000 to 5,000 between 1995 and 2000.” Basically, investors started inserting a vast amount of their money into these internet-based companies, which in turn caused the stock market to rise dramatically. “The approach of rapidly growing customer bases before making any real profit was the first mistake”(Dot-Com Bubble: Explained). These Internet companies were running their businesses off of investor’s money and not from real profit, consequently this in turn caused those companies to fail and claim bankruptcy...
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...dit NMIMS | The World .com fall - IT Bubble burst | | Poleswar Rao V | | INTRODUCTION The dot-com industry began in the early 1990s as a collection of startup companies using the Internet as their primary means to conduct business. These companies typically used the “.com” suffix in their company names, such as Amazon.com, and proliferated in the late 90’s with the massive investments in Internet-related stocks and enterprises. But with the failure and consolidation of many of these companies their numbers have since dwindled. The catastrophic collapse of the dot-coms that shook the U.S. economy started in May 2000. More than 210 dotcom companies failed in 2000 and a total of 762 dot-coms closed for the period January 2000 to December 2001. Since many of these dot-coms began to lay off their staff, the unemployment rate also increased from 3.9% to 6% by 2002. The dot-com bubble burst because the boom was based on the false premise that new technology would eliminate the need for brick-and-mortar stores as this new business model would supplant the old one, thereby converting the “Old Economy,” which is based on the production of physical goods into a “New Economy,” which is based on heavy use of information and communication technology. Although a great deal can be learned from examining the dot-com successes, it is equally important to study reasons for the failures. Examining the mistakes made by the dot-coms can provide insight into the evolution of e-commerce...
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...Professor MacKenzie Table of Contents Introduction………………………………………………………………………………..3 How the World Wide Web Began………………………………………………………….4 Tim Berners Lee……………………………………………………………………………4 How the Bubble Inflated…………………………………………………………………..5 How the Bubble Popped…………………………………………………………………..6 What Lessons were Learned……………………………………………………………….7 Could it have been Stopped………………………………………………………………… Introduction The internet bubble history started in 1993 with the public being able to access the World Wide Web. The WWW was inflated with the overpriced investment returns from 1994 through 2000. The bubble of the WWW busted wide open in 2001. At that time the Nasdaq was often quoted as a big indicator of the bubble. During that time the Nasdaq rose from around $750 dollars to approximately $5130 dollars. That was and incredible increase of about 682% from January 1995 continuing through March 2000. During this time the industry was focusing primarily on computer software. They focused on this due to the high profit margin for the software. In this paper I will explore the many avenues of how the WWW was created and the rise and fall of the internet creation. Figure [ 1 ] flatworldbusiness.worldpr How the World Wide Web Industry Began In the beginning ideas for the WWW go back as far as 1946. A gentleman named Murray Leinster wrote a story that talked about Logics also known as computers. Mr. Leinster said that its occupancy was in every home. The story does take...
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...Professor Aino Levonmaa, Faculty Advisors Honors thesis submitted in partial fulfillment of the requirements for Graduation with Distinction in Economics in Trinity College of Duke University Duke University Durham, North Carolina 2010 Acknowledgements We would like to thank Dr. Emma Rasiel and Professor Aino Levonmaa for their invaluable direction, patience, and guidance throughout this entire process. Abstract The goal of this paper is to investigate the forecasting ability of the Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH). We estimate the DCC’s forecasting ability relative to unconditional volatility in three equity-based crashes: the S&L Crisis, the Dot-Com Boom/Crash, and the recent Credit Crisis. The assets we use are the S&P 500 index, 10-Year US Treasury bonds, Moody’s A Industrial bonds, and the Dollar/Yen exchange rate. Our results suggest that the choice of asset pair may be a determining factor in the forecasting ability of the DCC-GARCH model. I. Introduction Many of today’s key financial applications, including asset pricing, capital allocation, risk management, and portfolio hedging, are heavily dependent on accurate estimates and well-founded forecasts of asset return volatility and correlation between assets. Although volatility and correlation forecasting are both important, however, existing literature has dealt more closely with the performance of volatility models...
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...Sun, often regarded as one of IT's great innovators during its 27-year lifespan? The dot-com crash at the start of this decade is frequently cited as the beginning of the end for Sun, and for good reason. Acquisition missteps and a failure to monetize key products such as Java also hastened Sun's descent. "The dot-com bust hurt everybody but it's arguable that Sun was hurt most of all because it had profited so much in the run up to the boom in the first place, and hadn't grown its business out as deeply as IBM and some others had," says Pund-IT analyst Charles King. Sun's Sparc servers with the Solaris operating system were snatched up by dotcom start-ups because of their stability and flexibility in deploying various applications at affordable prices, King says. "In the months following the bust, there was a huge amount of Sun product that was out on the street and it precluded the need for people to upgrade or purchase new equipment," King says. Sun prized its Sparc architecture so much that it missed the industry-wide transition to x86 processors, analysts say. Sun actually did sell x86-based systems in the 1980s, but concentrated its efforts on Sparc for most of the 90s. In King's view, Sun treated x86 systems as nice toys, but not platforms that could be used to power a serious corporate data center. Sun did increase its presence in the x86 market in the years following the dot-com bust with AMDand Intel-based servers, but it seems to have been too little, too late...
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...The Role of Capital Market Intermediaries in The Dot- Com Crash of 2000 1. What is the intended role of each of the institutions and intermediaries discussed in thecase for the effective functioning of capital markets? The institutions and intermediates roles are: a)Venture capitalists: VC provides capital for companies in their early stages of developmentand screen good business ideas and entrepreneurial teams from bad ones. It employs savvy business people who worked closely with their portfolio companies to both monitor andguide them to a point where they have turned a business idea into a well- managed fullyfunctional company that could stand on its own and nurture the companies until theyreached a point where they were ready to face the scrutiny of the public capital markets after an IPO. b) Investment Bank Underwriters: It helps entrepreneurs in the actual process of doing initial public offerings, and provides advisory financial services, helped the companies price their offerings, underwrite the shares, and introduce them to investors. c) Sell-Side analysts: The main role of sell side analysts was to publish research on publiccompanies and involved forming relationships with and talking to the managements of thecompanies, following trends in the industry, and ultimately making buy or sellrecommendations on the stocks.d) Buy-Side Analysts and Portfolio Managers: They are usually assigned to a group of companies within a certain industry and are...
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