Was there a Nasdaq bubble in the late 1990s?

Not necessarily: a firm's fundamental value increases with uncertainty about average future profitability, and this uncertainty was unusually high in the late 1990s. After calibrating a stock valuation model that takes this uncertainty into account, we compute the level of uncertainty that is needed to match the observed Nasdaq valuations at their peak. The uncertainty we obtain seems plausible because it matches not only the high level but also the high volatility of Nasdaq stock prices. In general, we argue that the level and volatility of stock prices are positively linked through firm-specific uncertainty about average future profitability.