Financial History IV

The keynote address in Antwerp was given by Yale's Will Goetzmann. Professor Goetzmann runs Yale's International Center for Finance. He was instrumental in developing the ICF's Historical Financial Research Data, which is made freely available to researchers.

Along with Rik Frehen and R. Geert Rouwenhorst, Goetzmann has just published a paper in the Journal of Financial Economics entitled New evidence on the first financial bubble. The working paper is available here and the abstract is below.

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.