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Riding the South Sea bubble

  • Peter Temin
  • 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 nonetheless invested in the stock; 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://www.econ.upf.edu/docs/papers/downloads/861.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 861.

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Date of creation: Dec 2004
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Handle: RePEc:upf:upfgen:861
Contact details of provider: Web page: http://www.econ.upf.edu/

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