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Financial market analysis can go mad (in the search for irrational behaviour during the South Sea Bubble)

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  • GARY S. SHEA

Abstract

An investigation into the legal and political history of South Sea Company subscription finance shows that the subscription contracts had default options built into them, as was typically the case in eighteenth‐century subscription financing. Company records and contemporary pamphlet literature show that people understood the subscription finance mechanics that were stated in law. A fair presentation of South Sea share value data also supports this view. We thus conclude that the analyses published in this journal by Dale, Johnson, and Tang were irretrievably flawed and present a substantially incorrect history of the markets for South Sea shares.

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  • Gary S. Shea, 2007. "Financial market analysis can go mad (in the search for irrational behaviour during the South Sea Bubble)," Economic History Review, Economic History Society, vol. 60(4), pages 742-765, November.
    • Handle: RePEc:bla:ehsrev:v:60:y:2007:i:4:p:742-765
    DOI: 10.1111/j.1468-0289.2007.00379.x
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    References listed on IDEAS

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    1. Scott, William Robert, 1912. "Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 3, number scott1912c.
    2. Scott, William Robert, 1912. "Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number scott1912b.
    3. Scott, William Robert, 1912. "Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number scott1912a.
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    Cited by:

    1. Giusti, G. & Noussair, C.N. & Voth, H-J., 2013. "Recreating the South Sea Bubble : Lessons from an Experiment in Financial History," Other publications TiSEM dd894e7e-521a-4092-94b0-0, Tilburg University, School of Economics and Management.
    2. Frehen, Rik G.P. & Goetzmann, William N. & Geert Rouwenhorst, K., 2013. "New evidence on the first financial bubble," Journal of Financial Economics, Elsevier, vol. 108(3), pages 585-607.
    3. Robert F. Bruner & Scott C. Miller, 2020. "The First Modern Financial Crises: The South Sea and Mississippi Bubbles in Historical Perspective," Journal of Applied Corporate Finance, Morgan Stanley, vol. 32(4), pages 17-33, December.
    4. Richard A. Kleer, 2015. "Riding a wave: the Company's role in the South Sea Bubble," Economic History Review, Economic History Society, vol. 68(1), pages 264-285, February.
    5. Rik P. & William Goetzmann & K. Rouwenhorst, 2009. "New Evidence on the First Financial Bubble," Yale School of Management Working Papers amz2542, Yale School of Management, revised 01 Nov 2009.
    6. Madarász, Aladár, 2011. "Buborékok és legendák. Válságok és válságmagyarázatok - II/1. rész. A Déltengeri Társaság [Bubbles and myths, crises and explanations II/1: the South Sea bubble]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 909-948.
    7. Toms, Steven, 2015. "Fraud and Financial Scandals: A Historical Analysis of Opportunity and Impediment," MPRA Paper 68255, University Library of Munich, Germany.
    8. Campbell, Gareth & Turner, John, 2010. "‘The Greatest Bubble in History’: Stock Prices during the British Railway Mania," MPRA Paper 21820, University Library of Munich, Germany.
    9. Graeme Acheson & Michael Aldous & William Quinn, 2024. "The anatomy of a bubble company: The London Assurance in 1720," Economic History Review, Economic History Society, vol. 77(1), pages 160-184, February.
    10. Frehen, Rik G.P. & Goetzmann, William N. & Geert Rouwenhorst, K., 2013. "New evidence on the first financial bubble," Journal of Financial Economics, Elsevier, vol. 108(3), pages 585-607.
    11. Quinn, William & Turner, John D., 2020. "Bubbles in history," QUCEH Working Paper Series 2020-07, Queen's University Belfast, Queen's University Centre for Economic History.
    12. Richard Kleer, 2014. "Riding a wave: the Company’s role in the South Sea Bubble," Working Papers 14017, Economic History Society.

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