D uring the 1990s there were three back-to-back events that stimulated investment in information technology: telecommunications deregulation in 1996, the “year 2K” problem in 1998-99, and the “dot com” boom in 1999-2000.The resulting investment boom led to a dramatic run-up of stock prices for information technology companies. Many IT companies listed their stocks on NASDAQ. The following figure depicts the cumulative rate of return on the NASDAQ and the S&P500 during most of the 1990s. Note how closely the two indices track each other up until January of 1999, at which point NASDAQ took off on its roller coaster ride. Eventually it came crashing back, but it is interesting to observe that the total return on the two markets over the eight years depicted in the figure ended up being about the same. This figure actually understates the magnitude of technology firms on stock market performance, since a significant part of the S&P return was also driven by technol...
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