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Credit Provision and Stock Trading: Evidence from the South Sea Bubble
Published online by Cambridge University Press: 16 October 2023
Abstract
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This article studies the relationship between credit provision and stock trading behavior. We collect every stock transaction of the three major British companies during the 1720 South Sea Bubble and link stock trading to margin loan positions with the Bank of England. We give insights in the selection of traders into the loan facility by comparing the trading behavior and realized returns of borrowers to other traders. We find that loan holders are more likely to buy following high returns and document strong underperformance of borrowers.
- Type
- Research Article
- Information
- Journal of Financial and Quantitative Analysis , Volume 59 , Issue 8 , December 2024 , pp. 3708 - 3738
- Creative Commons
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.- Copyright
- © The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank Ran Abramitzky, Graeme Acheson, Michael Brennan, William Goetzmann, Bige Kahraman (discussant), Peter Koudijs, Lyndon Moore, Alp Simsek (discussant), Denitsa Stefanova (discussant), John Turner, and all seminar participants at the 2020 EFA, 2019 Colorado Finance Summit, 2019 Cavalcade Asia-Pacific, 2018 Financial History Workshop, 2019 Monetary and Financial History Workshop, 2018 EBC Workshop, 2019 EBHA Conference, 2020 Virtual Economics & Finance Conference, Adam Smith Business School Glasgow, Alliance Business School-University of Manchester, Nottingham University Business School, Stanford University, Tilburg University, University College of Dublin, University of Tübingen, Utrecht University, Queens University of Belfast, and WHU-Otto Beisheim School of Management for useful comments as well as Ann Carlos for kindly sharing the Royal African Company data and Larry Neal for sharing the price data.
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