The anatomy of a bubble company: The London Assurance in 1720

Research on the financial events of 1720 in Britain has overwhelmingly focused on the South Sea Company, but price movements were much more dramatic in the shares of the newly incorporated London Assurance (LA) Company. This paper uses unique archival material on the London Assurance to address three important debates around the 1720 bubble. First, it examines competing claims around the bubble's price dynamics, finding that the largest price movements were driven by changes in the market structure for LA shares rather than by news about fundamentals. Second, it explores how the shareholder base changed during the bubble, finding that informed insiders were more likely to exit for a profit at the peak of the bubble. Finally, an examination of LA shareholder behaviour up to 1737 suggests that the bubble caused a loss of shareholder expertise, with detrimental consequences for the Company's governance. These results demonstrate how a bubble in the shares of a newly created company can lead to an exodus of informed investors, damaging the company's long-term prospects.