The rapid recent rise in Internet-related stock prices was akin to the popular appeal of a lottery, Mr Alan Greenspan, the chairman of the US Federal Reserve, said yesterday.
He added that most of the companies were likely to fail.
Though the Fed chairman said investors' heightened interest in Internet stocks was a tribute to the efficiency of US markets' ability to find new opportunities for growth, he warned that a degree of "hype" had entered the equation.
"You have these pie-in-the-sky type of potentials for a lot of different vehicles. And, undoubtedly, some of these small companies which have stock prices going through the roof will succeed and they very well may justify even higher prices. The vast majority are almost sure to fail. That's the way the markets work," he told the Senate Budget Committee.
Mr Greenspan's remarks were the latest in a series on the Fed's thorny problem of how to respond to surging US equity markets. They indicated once again Mr Greenspan's uneasiness at the high valuation of many companies' stock, but underlined his reluctance to target them with anything other than verbal warnings.
He tempered his warnings by allowing that the interest in Internet stocks resulted to some extent from fundamental changes in the economy, which justified some of the sector's performance.
"The issue really gets to the increasing evidence that a significant part of the distribution of goods and services in this country is going to move from conventional channels into some form of Internet system - whether it's retail goods or services or a variety of other things."
But Mr Greenspan said the market was operating along similar principles to that of a lottery - where people will pay far more for a ticket than is justified by the true value of a one-in-a-million chance of winning.
"When you are dealing with stocks - the possibilities of which are, either it's going to be valued at zero or some huge number - you get a premium in that stock price which is exactly the same sort of price evaluation process that goes on in the lottery," he said.
Companies such as Amazon.com and Yahoo have enjoyed startling increases in their stock prices in recent months.
