Riding the South Sea Bubble

Download or read book Riding the South Sea Bubble written by Peter Temin and published by . This book was released on 2004 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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. Keywords: Bubbles, Crashes, Synchronization Risk, Predictability, Investor Sentiment, South Sea Bubble, Market Timing, Limits to Arbitrage, Efficient Market, Hypothesis. JEL Classifications: G14, G12, N23.