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.
| Original language | English |
|---|---|
| Pages (from-to) | 585-607 |
| Journal | Journal of Financial Economics |
| Volume | 108 |
| Issue number | 3 |
| Publication status | Published - 2013 |