Analysis of the Dot-Com Bubble of the 1990s

During the dot-com bubble of the 1990s, equity market valuation was a popular topic for investors, financial analysts and academics. Some questioned whether traditional accounting and financial information had lost its value relevance, as stocks traded at multiples of earnings well in excess of historic levels, leading Alan Greenspan to caution against irrational exuberance. This study examines the relation between market valuation and traditional accounting information before, during and after the bubble. We document a decline in the relation between market value and traditional accounting information during the bubble period followed by an increase after the collapse of the market in 2000. We also examine alternative explanations to the irrational exuberance theory, including the quality of earnings, and the aggressiveness of financial analysts' forecasts, finding weak support for either alternative