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SUMMARY:New Evidence on the First Financial Bubble - Dr Rik Frehen\, Tilbu
 rg University\, Department of Finance
DTSTART:20120206T180000Z
DTEND:20120206T193000Z
UID:TALK35442@talks.cam.ac.uk
CONTACT:D'Maris Coffman
DESCRIPTION:The first global financial bubbles occurred in 1720 in France\
 , Great-Britain and the Netherlands. Explanations for these linked bubbles
  primarily focus on the irrationality of investor speculation and the corr
 esponding stock price behavior of two large firms: the South Sea Company i
 n Great Britain and the Mississippi Company in France. In this paper we co
 llect and examine a broad cross-section of security price data to evaluate
  the causes of the bubbles. Using newly available stock prices for British
  and Dutch firms in 1720\, we find evidence against indiscriminate irratio
 nal exuberance and evidence in favor of speculation about fundamental fina
 ncial and economic innovations in the European economy. These factors incl
 ude the emergent Atlantic trade\, new institutional forms of risk sharing 
 and the innovative potential of the joint-stock company form itself. These
  factors ultimately had long-lasting transformative economic effects which
  may have been anticipated by the markets at the time. We use the cross-se
 ctional data to test the hypothesis that the bubble in 1720 was driven by 
 innovation by dividing the London share market into “old” and “new
 ” economy stocks. We find that firms associated with the Atlantic trade 
 and with the new joint-stock insurance form had the highest price increase
 s and had return dynamics consistent with current models of "New Economy" 
 stocks. New\, high frequency data allow us to pinpoint the date of the 172
 0 crash and track its international propagation.
LOCATION:Castle Teaching Room\, 4th floor\, Cambridge Judge Business Schoo
 l\, Trumpington Street\, CB2 1AG
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