Financial markets can go mad

Evidence of irrational behaviour during the South Sea Bubble1

Datos Bibliográficos

ID4354028
AutoresRichard Dale (University of Southampton), Richard S Dale, Johnnie E V Johnson, Leilei Tang (University of Southampton)
Año2005
Volumen58
Número2
Páginas233-271
Fecha de publicación2005-05-01
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaThe Economic History Review (JOURNAL)
Identificadores de la revistaISSN: 0013-0117 • E-ISSN: 1468-0289
EditorialWiley (PUBLISHER • GB)
DOI10.1111/j.1468-0289.2005.00304.x
OpenAlexW2127488376
IdiomaEN
Citas recibidas16
Referencias citadas27

This paper explores investor behaviour during the South Sea Bubble-the first major speculative boom and bust on the stock markets. Previous literature debates whether investors during this episode acted rationally. Newly acquired data involving parallel markets for the South Sea Company's stock and subscription receipts are analysed, and widening valuation gaps are observed between these substitutable financial instruments. Rational explanations do not prove adequate, and the anomalies are explained by the biased decision-making of investors, and their tendency to view financial markets as wagering markets. The implications of these findings for the current debate on rationality in financial markets are identified

Boom · Bust · Capital market · Economic bubble · Economics · Financial economics · Financial market · Geography · Irrational number · Monetary economics · Political science · Rationality · Stock (firearms) · Stock market · Stock market bubble · Valuation (finance) · Finance · Financial Markets and Investment Strategies · Law · Market Dynamics and Volatility · Monetary Policy and Economic Impact