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Riding the South Sea Bubble

  • Peter Temin
  • Hans-Joachim Voth

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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File URL: http://research.barcelonagse.eu/tmp/working_papers/91.pdf
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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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