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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.

Suggested Citation

  • Peter Temin & Hans-Joachim Voth, 2003. "Riding the South Sea Bubble," Working Papers 91, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:91
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    References listed on IDEAS

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    More about this item

    Keywords

    Bubbles; crashes; synchronization risk; predictability; investor sentiment; South Sea Bubble; market timing; limits of arbitrage; efficient market hypothesis;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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