New evidence on the first financial bubble
AbstractThe Mississippi Bubble, South Sea Bubble and the Dutch Windhandel of 1720 together represent the world's first global financial bubble. We hand-collect cross-sectional price data and investor account data from 1720 to test theories about market bubbles. Our tests suggest that innovation was a key driver of bubble expectations. We present evidence against the currently prevailing debt-for-equity conversion hypothesis and relate stock returns to innovations in Atlantic trade and insurance. We find evidence consistent with the innovation-driven bubble dynamics documented by Pastor and Veronesi (2009) for new economy stocks. Our evidence seems inconsistent with clientele-based theories that emphasize bubble-riding and short-sales restrictions.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Economics.
Volume (Year): 108 (2013)
Issue (Month): 3 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505576
Bubbles; Innovation; Clientele theory; Bubble riding; South Sea Bubble;
Other versions of this item:
- Rik G.P. Frehen & William N. Goetzmann & K. Geert Rouwenhorst, 2009. "New Evidence on the First Financial Bubble," NBER Working Papers 15332, National Bureau of Economic Research, Inc.
- Rik P. & William Goetzmann & K. Rouwenhorst, 2009. "New Evidence on the First Financial Bubble," Yale School of Management Working Papers, Yale School of Management amz2542, Yale School of Management, revised 01 Nov 2009.
- G01 - Financial Economics - - General - - - Financial Crises
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
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