Recreating the South Sea bubble: Lessons from an experiment in financial history
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- dc.contributor.author Giusti, Giovanni, 1984-ca
- dc.contributor.author Noussair, Charlesca
- dc.contributor.author Voth, Hans-Joachimca
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2017-07-26T10:41:59Z
- dc.date.available 2017-07-26T10:41:59Z
- dc.date.issued 2013-09-01
- dc.date.modified 2017-07-23T02:15:25Z
- dc.description.abstract Major bubble episodes are rare events. In this paper, we examine what factors might cause some asset price bubbles to become very large. We recreate, in a laboratory setting, some of the specific institutional features investors in the South Sea Company faced in 1720. Several factors have been proposed as potentially contributing to one of the greatest periods of asset overvaluation in history: an intricate debt-for-equity swap, deferred payment for these shares, and the possibility of default on the deferred payments. We consider which aspect might have had the most impact in creating the South Sea bubble. The results of the experiment suggest that the company s attempt to exchange its shares for government debt was the single biggest contributor to the stock price explosion, because of the manner in which the swap affected fundamental value. Issuing new shares with only partial payments required, in conjunction with the debt-equity swap, also had a significant effect on the size of the bubble. Limited contract enforcement, on the other hand, does not appear to have contributed significantly.
- dc.format.mimetype application/pdfca
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1381
- dc.identifier.uri http://hdl.handle.net/10230/20991
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 1381
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword financial bubbles
- dc.subject.keyword experiments
- dc.subject.keyword south sea bubble
- dc.subject.keyword risk-shifting
- dc.subject.keyword government debt
- dc.subject.keyword equity issuance
- dc.subject.keyword Economic and Business History
- dc.subject.keyword Macroeconomics and International Economics
- dc.title Recreating the South Sea bubble: Lessons from an experiment in financial historyca
- dc.type info:eu-repo/semantics/workingPaper