The anatomy of a bubble company: The London Assurance in 1720

Graeme Acheson; Michael Aldous; William  Quinn

doi:10.1111/ehr.13256

The anatomy of a bubble company: The London Assurance in 1720

Graeme Acheson, Michael Aldous, William Quinn

Accounting And Finance

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

50 Downloads (Pure)

Abstract

The London Assurance Company (LA), which incorporated during the bubble of 1720, experienced more dramatic price movements in its shares than the South Sea Company. This paper examines how incorporating during the bubble affected its long run performance. We show that the bubble in the Company's share price was partly attributable to changes in market structure during the share issuance process. As a result of the bubble, the Company's original subscribers, who had been curated for expertise and political connections, overwhelmingly exited during 1720 and were replaced by unsuccessful speculators. Analysis of LA shareholder behaviour up to 1737 suggests that this loss of shareholder expertise had detrimental consequences for the Company's performance. These results demonstrate how a bubble in the shares of a newly created company can lead to an exodus of value-adding investors, damaging the company's long-term prospects.

Original language	English
Pages (from-to)	160-184
Number of pages	25
Journal	Economic History Review
Volume	77
Issue number	1
Early online date	16 May 2023
DOIs	https://doi.org/10.1111/ehr.13256
Publication status	Published - 29 Feb 2024

Funding

This work was supported by the British Academy (award no. SG090281). We are grateful to Giovanni Federico and three anonymous referees of this journal who gave us detailed and helpful feedback. We would also like to thank Fabio Braggion, Ronan Gallagher, John Turner, seminar participants at the University of Edinburgh and Queen's University Centre for Economic History, and attendees at the Association of Business Historians Conference (University of Strathclyde), Bubble Act Conference (University of Southampton), Economic History Society Conference (Cambridge University), and European Historical Economics Society (University of Groningen) for their input on an earlier version of this paper. Thanks also to Katie Henderson and the archivists at the London Metropolitan Archive and the Bank of England for all of their assistance with the research underpinning this work.

Keywords

bubble company
The London Assurance Company (LA)
1720
incorporation
share prices
shareholders
price movements

Access to Document

10.1111/ehr.13256Licence: CC BY 4.0

Acheson-etal-EHR-2023-The-anatomy-of-a-bubble-companyFinal published version, 474 KBLicence: CC BY 4.0

British Academy Transfer - Graeme Acheson
Acheson, G. (Principal Investigator)
British Academy
1/12/19 → 31/08/22
Project: Research

Cite this

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The anatomy of a bubble company: The London Assurance in 1720

Abstract

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Keywords

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British Academy Transfer - Graeme Acheson

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