Arbitrage and Simple Financial Market Efficiency during the South Sea Bubble: A Comparative Study of the Royal African and South Sea Companies Subscription Share Issues
Subscription shares of the early 18th century were early examples of what today would be called innovated securities. Either by intent or happenstance, they served to overcome imperfections in the capital markets of the day. Not all such securities were, however, alike. The prominent examples of the subscription shares of the South Sea Company and the Royal African Company in 1720 were quiet different in their design and the corporate financial policies they were intended to aid. The historical literature emphasises the importance of irrational pricing behaviour during the South Sea Bubble, yet it is remarkable that in the financial markets of 1720 the relative values of subscription shares are easily understandable using standard financial theory.
|Date of creation:||15 Oct 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard S. Dale & Johnnie E. V. Johnson & Leilei Tang, 2005. "Financial markets can go mad: evidence of irrational behaviour during the South Sea Bubble -super-1 ," Economic History Review, Economic History Society, vol. 58(2), pages 233-271, 05.
- Ann M. Carlos & Jamie Brown Kruse, 1996. "The decline of the Royal African Company: fringe firms and the role of the charter," Economic History Review, Economic History Society, vol. 49(2), pages 291-313, 05.
- 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.
- Charupat, Narat & Prisman, Eliezer Z., 2004. "An essay on financial innovation: The case of instalment receipts," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 129-156, January.
- Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272, March.
- Gary S. Shea, 2005. "Understanding financial derivatives during the South Sea Bubble: the case of the South Sea subscription shares," CDMA Working Paper Series 200512, Centre for Dynamic Macroeconomic Analysis.
- Gary S. Shea, 2005. "Financial Market Analysis Can Go Mad (in the search for irrational behaviour during the South Sea Bubble)," CDMA Working Paper Series 200508, Centre for Dynamic Macroeconomic Analysis.
When requesting a correction, please mention this item's handle: RePEc:san:cdmawp:0716. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bram Boskamp)
If references are entirely missing, you can add them using this form.