The Dot-Com Crash of 2000
Case Study

1. What is the intended function of each of the establishments and mediators discussed in the instance for the effectual operation of capital markets?

The intended function of each of the establishments and mediators are shown in Exhibit 10. with the thought that the overall construction and single functions are working as a whole to ease the capital flow from the investors to the companies.

2. Are their inducements aligned decently with their intended function? Whose inducements are most misaligned?
No. As indicated in Exhibit 10. the overall construction and single functions are working as a whole to ease the capital flow from the investors to the companies. If we need to hold this market operation in a “clean” manner. the inducements of the mediators should non be straight related to the short term additions from this capital flow.

However. in existent life. that is non the instance. The one mediator whose inducements are most misaligned can be the money directors. Though it is true sometimes they are under force per unit area from “greedy” investors. it can be true that. in most of the instances. they are the 1 who build up the bubble ( volitionally or unwillingly ) . due to the fact that. the inducements they received are straight from their short term ( e. g. one-fourth or one-year ) public presentation. against the market benchmark or other money directors.

3. Who. if anyone. was chiefly responsible for the Internet stock bubble? My position is that. economic bubbles are portion of the capitalist market rhythms. it is really hard to state who was chiefly responsible for a economic bubble. There is this old expression that. “when market is traveling brainsick. no 1 can truly make anything about it” .

But take the 2000 Dot-Com bubble instance. if we truly have to place person who was more responsible than others. it seems it may be the sell-side analysts. This was chiefly due to the fact that. the analysis they put up were to certain extend biased. with unrealistic premises that the growing rate was really high and would stay that manner. It is non converting that they truly did non see any mark of hazard. but it is more converting that they may be deliberately disregard some of the obvious hazards.

4. What are the costs of such a stock market bubble? As a hereafter concern professional. what lessons do you pull from the bubble?

My position is that. economic bubbles are portion of the capitalist market. as the market is ever traveling through rhythms. When the market is traveling up and down. bubbles are built up and so travel bust. The costs of such a stock market bubble are really bad to some of the investors. particularly single investors. But in general. it is non bad to the market as a whole. Merely by traveling through the rhythms. the market is further developed through self-corrections.

As a hereafter concern professional. what we need to larn from the bubbles are that. we need to construct up our cognition and penetration of the market. and need to make plenty due diligence in concern and investing. Warren Buffett can be a good illustration for us. When the economic system is traveling through rhythms. with adequate penetration. we will necessitate to do determinations such as “buy when everyone sell. and sell when everyone buy” .