Australian Internet Stocks : Were They Special ?

and we acknowledge the contributions of participants at these conferences. All errors or omissions are our own. Abstract Were Australian Internet stock returns unusual? We examine daily returns on a primary sample of the 21 Australian Internet stocks in the Merrill Lynch (Australian) Internet Stock Index at the climax of the boom-bust period, between 21 September 1999 and 20 September 2000. Applying the Fama-French (1993) multi-factor model to our sample of Internet stocks and three control samples of non-Internet stocks, we find evidence that Internet stocks exhibited positive risk adjusted returns in the pre-Crash period but that these returns disappear in the post-Crash period. We investigate the possibility of misspecification in the three-factor model by including a share turnover factor and find this factor to be significant in explaining asset returns in all four samples. Finally, the inclusion of returns of U.S. Internet stocks does not fully explain the positive risk adjusted returns. We conjecture that the behavior we observe may be due to the existence of an irrational bubble in the market for Australian Internet stocks. Our bottom line is that Internet stock returns behaved differently from other stocks listed on the Australian Stock Exchange.