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CRIEFF Discussion Papers list Abstract
The values of the famous Subscription Shares issued by the South Sea Company
in 1720 have to be split into two components before they can be understood.
One component was a fractional claim upon one original share in the firm. The
other component, however, was a bundle of share warrants. The information contained
in share warrant values is potentially helpful in understanding the South Sea
Bubble. Warrant values might also be especially sensitive to "events"
and "news" and could provide new ways of marking the turning points
in the South Sea Bubble and testing for efficiency of markets. The level and
volatility of subscription share prices are both consistent with the hypothesis
that the subscription shares were essentially share warrants.
Key Words
South Sea Bubble, Royal African Company, arbitrage, market efficiency, call
options
JEL Classifications: N23, G13
Gary S. Shea
University of St Andrews
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CRIEFF Discussion Papers list