Irrational Exuberance: An Empirical Analysis of Market Dynamics in the Current US Technology Sector

Abstract

This thesis examines to what extent the contemporary US technology sector could find itself in a new bubble, like the one last seen at the beginning of this millennia. In this process we conceptualize a framework for thinking methodological about financial bubbles and underlying market mechanisms. We find evidence that US asset valuations are defined by a degree of behavioral shortcomings exhibited by irrational investors in the marketplace. It is further suggested that the capital market may have temporarily failed in its role as an efficient allocator of capital, with a reemergence of a growth at all costs mentality visible. We further assert that the US monetary policy, through historically low interest rates, have induced companies to increase leverage, of which the quality of debt is found to be declining, thus the economy is more prone to a market downturn. Based on our findings, we emphasize the need for caution when dealing with the sector, and highlight the likelihood that we are currently in a technology bubble.