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Riding the South Sea 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 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.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 91.

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Date of creation: Dec 2003
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Handle: RePEc:bge:wpaper:91

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Related research

Keywords: Bubbles; crashes; synchronization risk; predictability; investor sentiment; south sea bubble; market timing; limits of arbitrage; efficient market hypothesis;

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References

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  1. Peter Temin & Joachim Voth, 2006. "Banking as an emerging technology: Hoare's Bank, 1702-1742," Economics Working Papers 1263, Department of Economics and Business, Universitat Pompeu Fabra.
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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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