2 Causes and Characteristics of Financial Bubbles Because the bubble mainly took place in the United States, the Authors will focus on American company examples and the American stock exchange. Additionally, some company examples and survivors and losers of the bubble like, Webvan or Ebay get introduced. For this purpose, the general causes and characteristics of financial bubbles get described before the application to the Dotcom bubble follows. With this paper, the authors try to explain the rise and fall of Internet stock prices during that period.

The bubble burst during the years 2000 until 2002 when the NASDAQ lost nearly 80% of its value, many companies like failed completely and over $7 trillion in market value were destroyed. They were called ‘Dotcom Companies’ because of the ‘.com’ in the end of an URL that comes from the word ‘commercial’. This period was characterized by lots of establishments of companies in the Internet sector. It had its peak on Mawith a NASDAQ score of 5,048.62 (see figure 1). In only two years, the Internet sector grew over 1000% of its public equity and equalled nearly 6% of the market capitalization of the United States and over 20% of all public traded equity volume in the US.

The Dotcom bubble, also known as the ‘Internet bubble’ or the ‘Information technology bubble’ was a speculative bubble of stock prices of mainly American Internet companies during the time from 1995 until 2000 when many investors believed that a ‘new era’ was upon them. Illustration not visible in this excerpt 1 Introduction Table 2: A description of the timeline for the Dotcom bubble List of Acronyms and Abbreviations 2 Causes and Characteristics of Financial Bubblesįigure 1: Development of NASDAQ from 1995-2005

Bubble burst