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South Sea Company Subscription Shares and Warrant Values in 1720

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Abstract

The values of the famous Subscription Shares issued by the South Sea Company in 1720 have to be split into two components before they can be understood. One component was a fractional claim upon one original share in the firm. The other component, however, was a bundle of share warrants. The information contained in share warrant values is potentially helpful in understanding the South Sea Bubble. Warrant values might also be especially sensitive to "events" and "news" and could provide new ways of marking the turning points in the South Sea Bubble and testing for efficiency of markets. The level and volatility of subscription share prices are both consistent with the hypothesis that the subscription shares were essentially share warrants.

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Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0411.

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Date of creation: Feb 2004
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Handle: RePEc:san:crieff:0411

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Keywords: South Sea Bubble; Royal African Company; arbitrage; market efficiency; call options;

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  1. Gary S. Shea, 2004. "Rational Pricing of Options during the South Sea Bubble: Valuing the 22 August 1720 Options," CRIEFF Discussion Papers 0410, Centre for Research into Industry, Enterprise, Finance and the Firm.
  2. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
  3. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
  4. Carlos, Ann M. & Moyen, Nathalie & Hill, Jonathan, 2002. "Royal African Company Share Prices during the South Sea Bubble," Explorations in Economic History, Elsevier, vol. 39(1), pages 61-87, January.
  5. Neal,Larry, 1994. "The Rise of Financial Capitalism," Cambridge Books, Cambridge University Press, number 9780521457385, October.
  6. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  7. Merton, Robert C., 1986. "Capital market theory and the pricing of financial securities," Working papers 1818-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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