Riding the South Sea Bubble
By: [by] Peter Temin [and] Hans-Joachim Voth
Contributors: Voth, Hans-Joachim; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 04-02; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 04-02.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2003
Place of publication: Cambridge, MA
Language: eng
Number of pages: 51
Description: This paper presents a case study of a well-informed investor in the South Sea bubble. We argue that Hoare's Bank, a fledgling West End London banker, knew that a bubble was in progress and that it invested knowingly in the bubble; it was profitable to ride the bubble. Using a unique dataset on daily trades, we show that this sophisticated investor was not constrained by institutional factors such as restrictions on short sales or agency problems. Instead, this study demonstrates that predictable investor sentiment can prevent attacks on a bubble; rational investors may only attack when some coordinating event promotes joint action. Keywords: Bubbles, Crashes, Synchronization Risk, Predictability, Investor Sentiment, South Sea Bubble, Market Timing, Limits to Arbitrage, Efficient Market, Hypothesis. JEL Classifications: G14, G12, N23 .
Notes: "December 21, 2003."

Includes bibliographical references (p. 49-51).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.