Technology Industry Is Heading Toward A Bubble?

Nowadays, the prestige of the New York Stock Exchange (NYSE) is clearly attracting a large number of Chinese companies. Commonly, firms such as Alibaba seek to launch initial public offers (IPO) in foreign markets raising the capital that the firm needs to expand its businesses across the globe. Nevertheless, to deal with stock market reactions after an strong debut represents a great challenge for large corporations. Spinal (2014) states that “buying the shares of fundamentally strong companies soon after they hit the public market is fraught with the risk of short-term losses for retail investors”. Certainly, IPO initial returns are profitable, but it is important to consider the dramatically fluctuation that it may face due to volatility and high information asymmetry.

The stock that I have analyzed is Apple (AAPPL), which it falls under the technology sector and trades under the NASDAQ. This sector holds the biggest companies around the world. A lot of these companies are well known such as: Amazon, Google, LinkedIn, and etc. The technology sector is an undeniably investment opportunity for every investor around the world. Lets face it technology keeps improving and we have only seen the beginning of it. These companies, such as Apple, are associated with constant innovation and invention. Our modern economy relies upon the technology sector to improve quality, productivity, and profitability.

During the 1990s, as the Internet became available to the public and usage of it was on the rise, new start-up companies (start-ups) within the technology industry emerged. The Internet and technological advancements at the time enabled these companies to rapidly spread the word about their business; people were excited. The revolutionizing start-ups, known as “Dotcom companies,” (Dotcoms) embraced the Internet as key components of their business (“Dotcom”) and experienced spectacular initial public offerings (IPOs) and rapid increases in stock prices. This eventually led to a bubble; a bubble that burst in the early 2000s. Economics scholars Stephen G. Cecchetti and Kermit L. Schoenholtz explain that the Nasdaq Composite Index (Nasdaq), a stock-market index that is “composed of numerous small start-ups as well as large information technology (IT) firms, doubled in value from September 1999 to March 2000, then fell by 70 percent over the next year” (209). Along with the bursting bubble came financial distress that spread across the entire economy. Because Dotcoms were prominent in the bubble, the bubble has later been called “the Dotcom Bubble.” To fully understand the Dotcom Bubble, however, one must understand how bubbles are created,

Therefore, every bank trying to avoid this situation (Ellis, 2015). A speculative bubble is also called stock exchange, people generate income from buying stocks. Many people who guess the price of a stock and hoping to have a higher price after. When all people keep buying the same stock, the price is getting higher and higher, if they all want to sell at the same time, the price will fall. Therefore, the price of a stock is more than the current price including dividends and interest, that means the stock are having exhibited a bubble. Finally the international crisis, a speculative attack or cannot pay the country debts, they will force to devalue its currency and either, these countries will affect other countries with their trading, therefore, create financial crises in their country and might affect the whole world. (Sociable, 2014) In 2007 to 2008, there a huge international crisis and its affect so many countries at one time.

The financial market is turning cautious and more risk averse. The interest rates for start-ups are skyrocketing to two-digit figures. Companies are hit as soon as they run out of equity.

With the Internet boom, the stock market was not only brought out into the public spotlight, but it was also brought much closer to the

While in the process of determining companies to fund, Venture Capital firms examine some of these same characteristics on

Our data includes public companies that have passed the IPO stage because KLD MSCI data is only available for public companies. In order to control for a potential bias in our analyses due to the choice of receiving venture backing among IPO companies, we gather a comprehensive data on an initial sample of 12,010 IPOs from the period 1991-2015 from the Securities Data Company (SDC) database. Following previous researchers, we eliminate offerings (i) identified as unit offerings (ii) not involving common stock, (iii) of very small issues with offer size below 5 million dollars in order to eliminate penny stocks from our sample (Bradley, Cooney, Dolvin, and Jordan, 2005), and (v) for which SDC did not provide information required for our tests.

Historically venture capital represented a small portion of alternative assets, which in turn represented a small, but sizeable, portion of the global financial asset base. (INSERT CITATION). Prior to the semiconductor boom in the 1960s, venture capital was closer to what today is described as angel investing. During this period, the majority of new venture financing originated from individual investors, and often financed by the entrepreneur or his or her family and acquaintances. (INSERT CITATION).

C. Kindleberger (1978) first defined “bubbles” as a continuously increasing process of assets’ price. This phenomenon

Furthermore, the fees in European IPOs have decreased overtime whilst fees in the US for large IPOs have increased. They find that the differences in the way the costs are structured across continents have little explanatory power. Instead they suggest that the difference between the two markets is the level of competition. In the US the IPO activity is dominated by a few domestic banks, meanwhile in Europe; the US underwriters are evenly matched with European ones (Abrahamson et al 2011).

However, these theories only apply to assets with infinite lives (land and shares), as investors know that assets with finite terms will be redeemed for a specified value at maturity and this limits their secondary market price. According to Froot and Obstfeld, bubbles result from investors incorrectly estimating fundamentals. For example, shareholders may be unable to forecast industry changes that affect future profitability and are forced to condition expectations of future cash-flows on current payments. This ‘intrinsic rational bubble’ theory explains several empirical observations, including why share prices over-react to dividend changes.

With billion dollar companies like Apple, Walmart, AT&T and many more, why worry about volatile startup companies? Well, virtually every company begins as a startup (exception for de-mergers). Ergo, it is imperative that startup companies are studied and analyzed to

With such a high vacancy rate, people are wondering how large the real estate bubble in China will be. James S. Chanos, one of the first foresee the collapse of Enron and earn large profit from hedge fund, gave the answer, it will be Dubai times 1000. A growing number of economists and hedge funds managers have been believed that Chinese economy is a big bubble. Others argue that China is definitely not a bubble, the development is real. There is overheating in some area, but infrastructure construction is still necessary to a

The world had a technology boom in the nineties. However, there was a technology but in the decade 2000. Companies that were using technology to gain competitive advantage over their players in the industry may now have to look for other sources of competitive advantage.