Downward Sloping Demand Curves, the Supply of Shares, and the Collapse of Internet Stock Prices

Abstract

During five weeks over March and April 2000, internet stocks declined 58%. Almost $700 billion in capitalization was lost. This sudden collapse has been attributed to an increase in the supply of shares from lock-up expirations and equity offerings. In this paper, I show that internet stocks collapsed in this period regardless of whether their lock-ups expired or not. Furthermore, daily internet stock portfolio returns were almost unaffected by the number or dollar amount of lock-up expirations that day, or by the amount of stock offered in IPOs or SEOs