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Riding the South See Bubble

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  • Peter Temin
  • Hans-Joachim Voth

Abstract

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 nonetheless invested in the stock; 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.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 213.

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Date of creation: Dec 2004
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Handle: RePEc:bge:wpaper:213

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Related research

Keywords: Efficient market hypothesis; bubbles; crashes; synchronization risk; investor sentiment; south sea bubble; market timing; limits to arbitrage;

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  1. Et Newton redécouvrit la gravité
    by Benjamin Ting in Economiam on 2013-09-03 23:25:00
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