The fact that many people have entered the stock market in a short time is not entirely a good thing. Besides the losses they may incur and thereby run into financial difficulties, there is a risk of the stock market functioning less well because prices bolt from more fundamental levels. An example of this is the IT bubble in recent years. The ease with which firms attract capital in an over-valued market leads to misinvestment which, if it becomes too prevalent, can be harmful for society in general when the economy and the stock market both turn downwards. The behaviour of inexperienced investors is thus a general economic issue. The American study argues that firms, banks and analysts had incentives to talk inexperienced people into investing in new enterprises on grounds that were not entirely sound. Many new technology companies were not generating a profit and had to rely instead on paying for wages and equipment by issuing shares. For this to be feasible, stock markets need to be high. In this sense there were incentives for managements to trim reports and statements about their firm’s future profits. At the same time, analysts and investment banks, with potential earnings from launching share issues, lacked incentives to take a critical look at these reports and statements. Inexperienced investors did not get the assistance and support they needed. As a sign of this, the paper mentioned that in summer 2000 professional analysts were summoned to Washington for a congressional hearing on their market recommendations.
The results showed that in the period before the Nasdaq index fell as much as 60 per cent, less than 1 per cent of the recommendations had been to sell. The media subscribed to the exuberant mood with reports of rapidly rising share prices and the notion that quick money could be earned in the so-called new economy became the conventional wisdom. In retrospect we know that while share prices for IT and other new companies did rise rapidly for a number of years, they could also fall very quickly. Could there be a better illustration of a financial market bubble? Here I want to call for studies like those in the United States to throw more light on whether and, if so, to what extent there were also similar tendencies in Sweden. For the time being we shall have to make do with occasional observations and more anecdotal information. There is little doubt about the Swedish stock market also being feverish in the late 1990s, with many inexperienced newcomers. As far as I know, a good many companies were operating at a loss and issued shares. Neither did I detect a massive increase in sell recommendations before the IT bubble began to collapse. So a cautious 14  D’Avolio, G., Gildor, E. & Shleifer, A. (2001), Technology, information production and market efficiency, paper presented at the Federal Reserve Bank of Kansas City Symposium in Jackson Hole (August).