Asymmetric responses, risk seeking and internet bubble

We measure internet bubbles to verify the existence and evaporation of the internet bubble in early 2000. Then, we compare investor responses to internet stocks with those to traditional stocks to find how the internet bubble formed. Empirical results confirm that the internet bubble existed between 1998 and 1999, but began to evaporate in early 2000. Further, we find that the internet bubble formed due to investors' irrational overreaction to internet firms' positive outlooks and underreaction to internet firms' negative outlooks relative to their reactions to traditional firms. This finding supports our hypotheses that asset bubbles formed due to investors' extreme risk-seeking asymmetric responses to good and bad information.