Riding the South Sea Bubble

Riding the South Sea Bubble

No 4221, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The efficient markets hypothesis implies that, in the presence of rational investors, bubbles cannot develop. We analyse the trading behaviour of a sophisticated investor, a London goldsmith bank, during the South Sea bubble in 1720. The bank believed the stock to be overvalued, yet found it profitable not to attack the bubble. Detailed examination of daily transactions in the London stock market shows that ‘riding the bubble’ was a highly profitable strategy. These findings lend support to recent theoretical work arguing that predictable investor sentiment may prevent rational investors from attacking a bubble.

Keywords: bubbles; investor sentiment; south sea company; speculation (search for similar items in EconPapers)
JEL-codes: G12 G14 N23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-his
Date: 2004-01
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP4221.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Riding the South Sea Bubble (2004)
Journal Article: Riding the South Sea Bubble (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:4221

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP4221.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().