Paper #861

Títol:

Riding the South Sea bubble

Autors:

Peter Temin i Joachim Voth

Data:

Desembre 2004

Resum:

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.

Paraules clau:

Efficient Market Hypothesis, Bubbles, Crashes, Synchronization Risk, Investor Sentiment, South Sea Bubble, Market Timing, Limits to Arbitrage

Codis JEL:

G14, E44, N23

Àrea de Recerca:

Història Econòmica i de l'Empresa

Publicat a:

American Economic Review, American Economic Association, vol. 94(5), pp. 1654-1668, December 2004

Descarregar el paper en format PDF