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Case of study dot com crash of

The Internet Boom starts with the founding of Netscape in 1994, whose eponymous browser revolutionalizes access to the Web.

Like most financial market bubbles, the burst sends shockwaves across the globe as so-called experts, regulators, politicians, and media wonder how such a thing could have happened. Day Trading Ironically, the growth of the Internet and access to the Web introduces day trading of stocks to anyone with computer and a dial-up connection to the Internet.

Dow Theory Dow Theory practitioners receive two signals in the late-1990s that Old Economy stocks are due for a major correction.

Internet Bubble History Case Study Assignment Help

Signal 1 first dotted line in Chart 2. Yet, buoyed by ever-rising Internet stocks and announced technology acquisitions, the DJIA regains its legs to not only recover, but rise to new record highs; by May 1999 the DJIA stands at over 11000. Signal 2 second dotted line in Chart 2. Dow Theory warning signals arrive well-ahead of the Dot-com Bubble burst. But, stocks recover to new record highs until a second bearish divergence forms from early-March 2000 second dotted line in Chart 3.

Dot Com Bust: Ten Years After...

Again, technology investors receive ample warning of rising risk, this time from small cap stocks. The Greenspan Put Liquidity acts as the lifeblood for most financial bubbles.

Note how six increases in target Fed Funds Rate in 1999 have no effect on the parabolic rise of Dot-com stocks. Eventually, New Economy stocks reach their final apex in March 2000 ellipse in Chart 4. As stocks start to slide, the Fed, as though attempting to revive a cardiac arrest patient, lowers target Fed Funds Rate eleven times in 2001.

Dotcom Bubble

Lessons Euphoric emotions and greed drive financial bubbles; retail and professional investors, Wall Street analysts, regulators, politicians, and media can succumb to investing mania. Fundamental factors of financial assets e. When stocks trade at fundamental factors excessively above historical range, this acts as a warning signal that the probability of a correction is rising. Likewise, Dow Theory and small cap stock performance can indicate increased chance of a correction.

Finally, financial bubbles tend to be liquidity-driven events, thus focus on the actions of monetary authorities, not on their rhetoric, on whether liquidity is being increased or decreased.

Nevertheless, rising interest rates have significantly smaller effect on New Economy stocks than on capex, debt-heavy Old Economy stocks.