Investments, tenth edition

 Example  12.3 

A Stock Market Bubble? 

 

20

 We might ask why this logic of discounts and premiums does not apply to open-end mutual funds because they 

incur similar expense ratios. Because investors in these funds can redeem shares for NAV, the shares cannot sell 

at a discount to NAV. Expenses in open-end funds reduce returns in each period rather than being capitalized into 

price and inducing a discount.

 

21

 The following example is taken from R. A. Brealey, S. C. Myers, and F. Allen,  Principles of Corporate Finance,  

8th ed. (New York: McGraw-Hill Irwin, 2006).

bod61671_ch12_388-413.indd   398

bod61671_ch12_388-413.indd   398

7/17/13   3:46 PM

7/17/13   3:46 PM

Final PDF to printer

---

  C H A P T E R  

1 2

  Behavioral Finance and Technical Analysis  

399

  

22

 P. R. Rau, O. Dimitrov, and M. Cooper, “A  Rose.com  by Any Other Name,”  Journal of Finance  56 (2001), 

pp. 2371–88.

  

23

 E. F. Fama, “Market Efficiency, Long-Term Returns, and Behavioral Finance,”  Journal of Financial Economics  

49 (September 1998), pp. 283–306. 

 Still, other evidence seems to tag the dot-com boom as at least partially irrational. 

Consider, for example, the results of a study documenting that firms adding “.com” to the 

end of their names during this period enjoyed a meaningful stock price increase.  

22

    That 

doesn’t sound like rational valuation.