New evidence on the first financial bubble
Frehen,R.G.P. Goetzmann,W. Rouwenhorst,K.G.
Frehen,R.G.P.
Goetzmann,W.
Rouwenhorst,K.G.
Abstract
The Mississippi Bubble, South Sea Bubble and the Dutch Windhandel of 1720 together represent the world's first global financial bubble. We hand-collect cross-sectional price data and investor account data from 1720 to test theories about market bubbles. Our tests suggest that innovation was a key driver of bubble expectations. We present evidence against the currently prevailing debt-for-equity conversion hypothesis and relate stock returns to innovations in Atlantic trade and insurance. We find evidence consistent with the innovation-driven bubble dynamics documented by Pastor and Veronesi (2009) for new economy stocks. Our evidence seems inconsistent with clientele-based theories that emphasize bubble-riding and short-sales restrictions.
Description
Date
2013
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Citation
Frehen, R G P, Goetzmann, W & Rouwenhorst, K G 2013, 'New evidence on the first financial bubble', Journal of Financial Economics, vol. 108, no. 3, pp. 585-607. < http://www.sciencedirect.com/science/article/pii/S0304405X12002541 >