No full-text available
To read the full-text of this research,
you can request a copy directly from the author.
The tulipmania: Fact or artifact?
Abstract
The famous tulipmania, which saw the reported prices of several breeds of tulip bulbs rise to above the value of a furnished luxury house in 17th century Amsterdam, was an artifact created by an implicit conversion of ordinary futures contracts into option contracts in an imperfectly successful attempt by Dutch futures buyers and public officials to bail themselves out of previously incurred speculative losses in the impressively price-efficient, fundamentally driven, market for Dutch tulip contracts. There was thus nothing maniacal about prices in this period. Despite outward appearances, the tulipmania was not a bubble because bubbles require the existence of mutually-agreed-upon prices that exceed fundamental values. The “tulipmania” was simply a period during which the prices in futures contracts had been legally, albeit temporarily, converted into options exercise prices. Copyright Springer Science + Business Media B.V. 2007
... The interaction between the tulip's increasing popularity, rising demand, and limited supply caused the price to grow exponentially. At the height of the mania, the most coveted tulips cost as much as luxurious homes (Thompson, 2007). While Garber (2001) asserts that the exorbitant prices commanded by the rarest bulbs were rational, a contention that has been extensively criticized, the author agrees that the costs of common tulips did not correspond to their intrinsic worth. ...
... In three months, tulip prices fell at an annualized rate of 99,999.9 percent from their peak (Thompson, 2007). ...
... According to Thompson (2007), tulip hysteria is frequently used as an analogy for economic bubbles.R. C. Shiller (2000) defines financial bubbles as transitory high prices sustained by investors' enthusiasm rather than a change in the asset's fundamental value. As depicted in Figure 1, Rodrigue (2008) divides the stages of an economic bubble into the covert, awareness, mania, and blow-off phases. ...
This study examined the literature longitudinally to determine if the correlation between Bitcoin and tulip hysteria is valid. The study's findings indicate that Bitcoin has gradually separated itself from the tulip frenzy. As an electronic payment system and investment instrument, it has integrated itself into the modern financial system, unlike the tulip mania, a strictly speculative bubble with limited utility. Bitcoin's price may resemble the tulip hysteria and other bubbles, but its exploratory price pattern is characteristic of disruptive technologies.
... Data concerning the Mississippi Company have also been extracted from Frehen et al. (2013), and their daily quotation is expressed in livres de tournois. Finally, the data concerning the tulip bubble have been extracted from Thompson (2006) and are expressed in a daily quote reconstructed by the cited author. These data mining methods have been previously used in cryptocurrency papers such as those of Włosik et al. (2022), Łęt et al. (2022) and Łęt et al. (2023). ...
... Thus, once the selection of bubbles has been made after the literature review, different methods are applied to compare the sample of Bitcoin bubbles with the rest of historical bubbles. Thus, we used the 4.41 (Thompson, 2006) Source: authors' own elaboration based on data extracted from (Investing.com, 2023), (Dow Jones, 2023), (Frehen et al., 2013), and (Thompson, 2006). ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-024-03220-0 ...
... Thus, once the selection of bubbles has been made after the literature review, different methods are applied to compare the sample of Bitcoin bubbles with the rest of historical bubbles. Thus, we used the 4.41 (Thompson, 2006) Source: authors' own elaboration based on data extracted from (Investing.com, 2023), (Dow Jones, 2023), (Frehen et al., 2013), and (Thompson, 2006). ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-024-03220-0 ...
A number of financial bubbles have occurred throughout history. The objective of this study was to identify the main similarities between Bitcoin price behavior during bubble periods and a number of historical bubbles. Once this had been carried out, we aimed to determine whether the solutions adopted in the past would be effective in the present to reduce investors’ risk in this digital asset. This study brings a new approach, as studies have previously been conducted analyzing the similarity of Bitcoin bubbles to other bubbles individually, but these were not conducted in such a broad manner, addressing different types of bubbles, and over such a broad time period. Starting from a dataset with 9967 records, a combined methodology was used. This consisted of an analysis of the standard deviations, the growth rates of the prices of the assets involved, the percentage increase in asset prices from the origin of the bubble to its peak and its fundamental value, and, finally, the bubble index. Lastly, correlation statistical analysis was performed. The results obtained from the combination of the above methods reveal the existence of certain similarities between the Bitcoin bubbles (2011, 2013, 2017, and 2021) and the tulip bubble (1634–1637) and the Mississippi bubble (1719–1720). We find that the vast majority of the measures taken to avoid past bubbles will not be effective now; this is due to the digital and decentralized nature of Bitcoin. A limitation of the study is the difficulty in making a comparison between bubbles that occurred at different historical points in time. However, the results obtained shed light and provide guidance on the actions to be taken by regulators to ensure the protection of investors in this digital asset.
... Therefore, Germany's military successes in the early to mid-1630s created a general expectation of great prospects for the tulip market and fit the condition for new information that captivates the market and triggers the formation of a bubble, as outlined by Sornette and Cauwels [3]. Accordingly, tulip prices began to rise at an abnormal rate in 1632 [4]. The event that triggered the abrupt collapse of tulip prices came in early October 1636, with the resounding defeat that Germany suffered to the Swedes (with French support) at the Battle of Wittstock, combined with a renewal of German peasant revolts, which threatened to plunge northwest Germany back into turmoil [4]. ...
... Accordingly, tulip prices began to rise at an abnormal rate in 1632 [4]. The event that triggered the abrupt collapse of tulip prices came in early October 1636, with the resounding defeat that Germany suffered to the Swedes (with French support) at the Battle of Wittstock, combined with a renewal of German peasant revolts, which threatened to plunge northwest Germany back into turmoil [4]. Demand for tulips subsequently collapsed, while supply (likely) increased as German princes in the region were forced to dig up the unguarded and vulnerable tulips. ...
... Demand for tulips subsequently collapsed, while supply (likely) increased as German princes in the region were forced to dig up the unguarded and vulnerable tulips. The repercussions for the tulip market were felt in short order; by early November 1636, tulip prices had fallen to one-seventh of their peak value [4]. This historical example of a bubble clearly shows the influence of human behavior on the price of an asset and the emergence of a bubble, which is a major and current topic of interest in behavioral finance [5][6][7][8]. ...
In this work, we propose a mathematical model to describe the price trends of unsustainable growth, abrupt collapse, and eventual stabilization characteristic of financial bubbles. The proposed model uses a set of ordinary differential equations to depict the role played by social contagion and herd behavior in the formation of financial bubbles from a behavioral standpoint, in which the market population is divided into neutral, bull (optimistic), bear (pessimistic), and quitter subgroups. The market demand is taken to be a function of both price and bull population, and the market supply is taken to be a function of both price and bear population. In such a manner, the spread of optimism and pessimism controls the supply and demand dynamics of the market and offers a dynamical characterization of the asset price behavior of a financial bubble.
... However, after its initialand relatively modest --rise and subsequent fall, the price of tulips never experienced, another comparable price increase. To gauge the magnitude of the bitcoin bubble, compare the Figure 1 and Figure 2 this one constructed by Earl Thompson (2007) from actual prices in tulip contracts during the Dutch tulip mania of 1636-37. The price of tulips in February 1637 was about 10 times higher than they were in November 1636. ...
... Source: Thompson (2007) My concern is not so much to explain the resilience of the bitcoin phenomenon as to understand its implications. The price of bitcoin having recovered a substantial portion of earlier losses, one may assume that there are those who believe that there will be a sufficient increase in the demand for bitcoin to cause a future price increase. ...
... EarlThompson (2007) argued that the tulip bubble, almost universally considered the result of popular delusion, was in fact a rational response to a short period in which prices in futures contracts were legally, and temporarily, converted into options exercise prices. I neither endorse nor contest Thompson's claim here; I merely cite the tulip price increase and decline as a familiar example of price behavior thought to be characteristic of a bubble phenomenon. ...
This paper attempts to account for the rising value of cryptocurrencies using basic concepts of monetary theory. A positive value of fiat money is itself problematic inasmuch as that value apparently depends entirely on its expected resale value. A current value entirely dependent on expected future resale value seems inconsistent with backward induction. While fiat money can avoid the backward-induction problem if it is made acceptable in payment of taxes, acceptability for tax payments is unavailable to cryptocurrencies. Is the rising value of bitcoin and other cryptocurrencies a bubble? The paper argues that network effects may be an alternative mechanism for avoiding the logic of backward induction. Because users of any good subject to substantial network effects incur costs by switching to an incompatible alternative to the good currently used, users of a bitcoin for certain transactions may be locked into continued use of bitcoin despite an expectation that its future value will eventually go to zero. Thus, even if bitcoin and other cryptocurrencies are bubble phenomena, network effects may lock existing users of bitcoin into continued use of bitcoin for those transactions for which bitcoins provide superior transactional services to those provided by conventional currencies. Nevertheless, the prospects for bitcoin's expansion beyond its current niche uses are dim, because its architecture implies that a significant expansion in the demand for its transactional services would lead to rapid appreciation that is incompatible with service as a medium of exchange.
... There have been many important price bubbles in history, caused by the extreme increase in asset prices. Tulip Speculative Frenzy in the Netherlands in 1637 (Goldgar, 2007;Thompson, 2007); The South Sea Bubble, which occurred in the 1720s, was caused by the overvaluation of the stock prices of the South Sea Company, which aims to continue trade with South America more profitably (Paul, 2011;Frehen et al., 2013), the Mississippi Bubble in the French in the 1720s (Quinn & Turner, 2020), the pre-Great Depression price bubble and the Wall Street crash (Galbraith, 2009), the Dotcom tech bubble that started before the Millennium (Ljungquist & Wilhelm, 2003;Ofek & Richardson, 2003), the Mortgage crisis caused by the real estate bubble in the US (Mayer, 2011;McCarthy et al., 2013) and lastly, the Chinese bubble that occurred in the stock market covering the period 2007-2015 (Quinn & Turner, 2020) are the best-known examples of price bubbles. From a historical viewpoint, it can be said that the first place where the crises showed themselves was the finance and banking sector, and then it was reflected in the real sector. ...
Bubbles in asset prices have attracted the attention of economists for centuries. Extreme increases in asset prices, followed by their sudden decline, create a turbulent effect on the economy and even invite crises in time. For this reason, some measurement techniques have been employed to investigate the price bubbles that may occur. This study explores the possible speculative price bubbles of Bitcoin, Ethereum, and Binance Coin cryptocurrencies, compares them with the pre-and post-COVID-19 period, and examines asymmetric causality relationships between variables. Therefore, we analyzed the price bubbles of these cryptocurrencies using the closing price for daily data between 16.01.2018 and 31.12.2021 by the Supremum Augmented Dickey-Fuller (SADF) and the Hatemi-J (2012) asymmetric causality test. In this context, 1446 observations, 723 of which were before COVID-19 and 723 after COVID-19, were employed in the study. Looking at the SADF analysis results, we detected 103 price bubbles before COVID-19 for the three cryptocurrencies, while we determined 599 price bubbles after COVID-19. The common finding in the asymmetric causality test results is that there is a causality relationship between the negative shocks faced by one cryptocurrency and the positive shocks faced by the other cryptocurrencies.
... Tulip prices over the 1636-1637 period. Source:Thompson (2007). ...
This paper develops a model of rational bubbles where trade of an asset takes place through a chain of middlemen. We show that there exists a unique and robust equilibrium, and a bubble can occur due to information frictions in bilateral and decentralized markets. Under reasonable assumptions, the equilibrium price is increasing and accelerating during bubbles although the fundamental value is constant over time. Bubbles may be detrimental to the economy, but any announcement from the central bank has no effect on welfare with risk neutral agents. Middlemen are the source of financial fragility.
... At that time, due to the limited volume of tulip bulbs and their growing popularity, prices rose many times (about 20 times in 4 months), and market regulation only contributed to the formation of this bubble. The result was a market collapse and a sharp fall in the price of tulip bulbs in February 1637 [30]. ...
Asset price bubbles are a unique combination of economic and psychological factors. They occur in different countries with different cultural and economic developments. The study of this issue remains relevant because even increased regulation does not solve the problem of asset price bubbles. In this brief review of two bubbles, it was shown that, using the examples of Japan and Ukraine, it is possible to identify both general and specific factors and characteristics of such price bubbles. It is necessary to distinguish the stages of price bubbles formation, because each stage has its own specifics. At the stage of the bubble formation, common factors for both countries were the lack of regulation and the absence of financial stress over a long period; specific factors for Japan were financial liberalization and the absence of cases of bankruptcy of financial institutions over a long period; for Ukraine were characterized by the following factors, namely lack of financial regulation, lack of experience with financial bubbles, economic recovery after a long period of uncertainty, growth of household incomes and formation of over-positive expectations, increase in bank lending to households combined with its absence in the past. During the bubble inflation phase, the common factors were lack of disclosure, positive expectations, aggressive banking, lower lending standards, and rising profits specific factors for Japan are reducing the balance of payments surplus, providing incentives for the yen appreciation, easing monetary policy, changes in fiscal policy, the need to coordinate U.S., Japanese and European policies to maintain global economic stability, taxation and regulatory specifics, easing monetary policy; For Ukraine, such factors were the growth of the real estate market, the inflow of foreign investment, and access to international capital markets. At the peak of the bubble, the common factors were euphoria, virtually unlimited access to financial resources, and a boom in asset prices. At the stage of the bursting of the bubble, the common characteristics were a sharp fall in prices, a sharp fall in demand, the collapse of the securities market, the use of monetary policy instruments; specific to Japan –«The Lost Decade», particular to Ukraine –the end of real estate mortgage lending, the disappearance of the emerging market for mortgage-backed securities. In turn, understanding the factors and characteristics of asset price bubbles at each stage allows for better policy decisions.
... More recently, however, economists have reexamined this historical episode and challenged these early interpretations (Garber 1990(Garber , 2001Thompson 2007). Far from being an example of irrational speculation, these works argue that, given the information available at the time, the level of prices was fully warranted from an economic viewpoint. ...
This thesis provides a historical and methodological analysis of the efficient market hypothesis, which represents one of the theoretical pillars of financial economics, but also one of the most controversial notions in the field. This research aims to shed light on the debates about this central and ambiguous concept, whose history is characterized by the diversity of its formulations and interpretations. In this thesis, I study these formulations and the contexts in which they emerged. I analyze the evolution of this hypothesis, from its origins in the 1920s to the recent transformations of the early 1980s. I interpret the efficient market hypothesis as a bridge between financial economics and economics, that is, as a concept at the heart of the identity of financial economics, but also as the main object through which this sub-discipline dialogues with the rest of the discipline. This intellectual history is structured around four articles, which discuss in detail these interactions. In the first episode, I examine the pioneering analyses of financial markets pursued by agricultural economists during the inter-war period and their influence on modern financial economics. In the second episode, I focus on the modern development of this hypothesis during the emergence of financial economics in the 1960s and on the close relationship between economists and early financial economists. The third episode explores the growing role of macroeconomists in the 1970s and early 1980s, which ultimately led to the questioning and reformulation of the hypothesis. Finally, the fourth chapter offers a methodological analysis that investigates the link between market efficiency and Hayek’s information theory. In this fourth episode, I analyze the conceptual similarities and differences between these two theories of price formation.
... Speculative bubbles have a long and turbulent history. The best known price bubbles include the Dutch tulip mania, the Mississippi bubble and the South Sea bubble described by Garaber in 1990(Garber 1990 and other authors (Baddeley and McCombie 2001;Thompson 2007;Goldgar 2008;Kamm 2018). In recent years, the interest in speculative bubbles was fuelled by the unexpected and extraordinary boom on the real estate market (Glaeser, Gyourko, and Saiz 2008, 1) which led to a market bubble in 2007-2008 and the global financial crisis (Blanchard 2009, 5;Freixas 2018;Virtanen et al. 2018). ...
The article presents a detailed review of the literature relating to speculative price bubbles on the real estate market, in particular the typology of speculative price bubbles. The aim of the study was to synthesize the knowledge on different types of price bubbles in the international literature. A typology of price bubbles was proposed based on functional and structural criteria that account for the structure of price bubbles and the real estate market. The research methods involved critical analysis and a review of the literature with a commentary. The study proposes a novel typology of price bubbles and defines the concept of a “conversion point” which is associated with changes in the group of factors that lead to the formation of price bubbles and changes in bubble type.
... The first modern exchange was the one of Amsterdam opened in 1602 (Braudel 1972). The new exchanges mark a progressive shift in the interest of the investors from the actual goods to the financial speculation based on the trading of futures contracts and options for profiting from the volatile price movements, as in the case of the tulip market, which crashed in 1637 (Thompson 2007). During the early modern age, new stock markets were established in Europe and, in other, non-Western countries, as in the case of Dōjima Rice Exchange of Osaka, established in 1697 and for about 250 years was the central place for rice market in Japan (Poitras 2000;Schaede 1989). ...
This chapter explores herding behavior in financial markets, where individuals follow the actions of a larger group, impacting market dynamics and asset prices. It covers key theories and models, such as social influence, behavioral finance, and empirical studies, to explain why herding occurs. Psychological biases like overconfidence, fear, and greed are highlighted as drivers of this behavior. Models such as rational expectations, noise traders, and information cascades are discussed, along with methods to measure herding. Case studies like the dot-com bubble and the 2008 financial crisis demonstrate its effects on market volatility and efficiency. The chapter also addresses regulatory implications and future research on the influence of technology and social media in shaping herding.
This study aims to investigate the performance and behavior of fiat-and gold-backed cryptocurrencies to support stakeholders through the preparation of a portfolio from 1 January 2021 to 30 June 2022. Moreover, while searching for a hedge or a diversifier to construct a less risky portfolio with handsome returns, the prices of fiat-backed cryptocurrencies report high fluctuation during the sample period. ARIMA-EGARCH models have been employed to examine the volatile behavior of these cryptocurrencies. The empirical results are mixed as Bitcoin has been highly volatile during the economic recession. Due to its volatility, investors seek a safe haven. Ripple, on the other hand, shows low risk compared to Bitcoin. The results further reveal that PAX gold is more volatile than PM gold, while Bitcoin, being a highly traded cryptocurrency, is significantly correlated to other cryptocurrencies. The implications of this research showing the volatility of gold-and fiat-backed cryptocurrencies are equally important to stakeholders, such as investors, and policymakers.
The paper examines the first financial crises based on speculative exchange transactions with overseas goods and securities of trading companies. Based on the study of Tulip mania, as well as the bubble of the South Seas and Mississippi, the features of concluding transactions "for the future" with the supply of assets that do not exist at the moment, the possibility of production or procurement of which was based on skillfully spreading rumors, are described in detail. Attention is paid to the "behavior of the crowd" when, with insufficient regulation on the stock market, the broad masses of the population became participants in exchange trading, investing there not only their own, but sometimes also borrowed assets. The assessment of measures to prevent stock speculation in the context of the abolition of monopoly rights of trading companies and the liberalization of public relations is given. The main conclusion of the author is the dialectical interpretation of speculative crises of the XVII-XVIII centuries as, on the one hand, objectively previously unknown phenomena, for the prevention of which the government did not have enough knowledge and tools. On the other hand, crises became effective tools in carrying out structural transformations in societies of that time, breaking the established foundations, redistributing wealth, stimulating institutional changes, since the adoption of prohibitive measures in relation to speculation on the stock exchange would make it impossible overseas trade and expansion of trading companies abroad, which in fact was accompanied by a profitable robbery of colonies with the corresponding the flow of resources to Europe. Financial crises based on speculation and "air" trading persist to the present and often become global, which, in the author's opinion, is due to the impossibility of introducing total control over new financial instruments for investing abroad and an ambiguous assessment of the profitability of such activities in the future.
Considering world history from the fifteenth century; geographical discoveries have positively affected the economic functioning of European States. However, in the sixteenth century, the European economy did not exist much, and even the agricultural sector, where the highest production was made, declined. Later, the European States, especially the Netherlands, implemented modern agricultural practices, and this development brought about a change in monetary processes as a reflection of the improvement in agriculture. By the seventeenth century, European States underwent a great change with the reform and renaissance movements and the spread of colonialism. The transformation of European States into central states at the end of the seventeenth century and mostly at the beginning of the eighteenth century and the large amount of gold and silver stocks brought from the colonial lands positively affected their economies and these states began to have a say in the world economy in proportion to their economic power. The abundance of these monetary resources brought along the European States to act in line with different economic processes. This chapter addresses the causes, occurrences and consequences of the first period crises, which can be called the first real economic crises between the seventeenth and nineteenth centuries.KeywordsDutch Tulip ManiaTulip crisisEuropean statesTulip market
Das Buch von Markus K. Brunnermeier über „Die resiliente Gesellschaft“ war der Anstoß, das Konzept der Operational Resilience etwas zu verlassen und in einem erweiterten Rahmen zu betrachten. Wie ist es mit den Worten von Markus K. Brunnermeier möglich, „die Gesellschaft zum Risiko zu ermutigen“? Hier stehen sich Konzepte der sozialen Marktwirtschaft – als eine Grundabsicherung – und die heute wuchernde staatliche Rundumvorsorge antagonistisch gegenüber. Aber auch digitale Entwicklungen werden – zwischen Eigenverantwortung und Zentralismus – diskutiert. Welche makroökonomischen Elemente können eine Operational Resilience gesamtwirtschaftlich unterstützen?
Hoa tulip được du nhập từ Thổ Nhĩ Kỳ vào châu Âu từ giữa thế kỷ XVI. Ngay sau đó, tulip đã nhanh chóng trở thành loài hoa được ưa chuộng bậc nhất tại châu Âu thời sơ kỳ cận đại. Đặc biệt, hoa tulip đã sinh sôi mạnh mẽ khắp các tỉnh ở “Vùng đất thấp” (Hà Lan) và ngày nay được biết đến như là biểu tượng văn hóa của đất nước này. Vào thập niên 30 của thế kỷ XVII, tại Hà Lan sự bùng nổ của thương mại hoa tulip đã dẫn đến một hiện tượng được gọi là hội chứng hoa tulip hay cơn sốt hoa tulip. Nó được xem là một trong biến cố quan trọng nhất trong lịch sử Hà Lan thời cận đại. Bài viết này trước tiên tìm hiểu về sự du nhập của hoa tulip vào châu Âu ở nửa sau thế kỷ XVI. Sau đó, bài viết phân tích bối cảnh lịch sử, diễn biến cùng nguyên nhân của hội chứng hoa tulip ở Hà Lan vào đầu thế kỷ XVII.
The basic and common features of bubbles are revealed by historical reviews and comparisons of important episodes. Assumptions about the effectiveness of monetary policy initiatives and approaches are questioned along with the assumption that GDP growth and market returns are related.
At the time of writing this article, the Bitcoin bomb has exploded; after peaking at 31,276 on May 21, 2021; consequently, nearly 1.182 trillion (April 2021) to less than 600 billion (May 2021). Bitcoin’s high price valuations coincides with its halving dates; aftermath of each halving event has led to a bubble formation within one year and a crash in the ensuing few months after a perceived peak has been achieved. The three previous halving events are a testimony to this fact; after the halving #1 on 28 November 2012 (block reward was reduced from 50 BTC to 25 BTC), price of each bitcoin increased from 76 on 9 July 2013 to a peak of 177 in January 2015). Following the halving #2 on 9 July 2016 (block reward was reduced from 25 BTC to 12.5 BTC), the price of bitcoin charted a remarkable ascent, from 20,089 on December 17 in the same year (a surge of 1,986%, followed by a nosedive to 3,557 in January 2018). The halving #3 has been most unprecedented by any stretch of imagination, the value of each bitcoin has skyrocketed from 7,194 on 1 January 2020 to $64,863 on 14 April 2021; however in the subsequent month (May 2021), Bitcoin gave back half of the gain (price reduction of 20% or more could be considered as a major correction). It is important to mention that Blockchain is not confined to Bitcoin and its survival as a revolutionary technology does not depend on cryptocurrencies. Bitcoin and some altcoins may become obsolete, but blockchain will continue to forge ahead unabated as many life-changing inventions have done before.
Speculative economic, financial, and cryptocurrency bubbles are not arcane anymore; nonetheless, they are still misunderstood. For this exact reason, they continue to form even centuries after the famous first speculative bubbles of 17 th and 18 th centuries. Bubbles do not form instantaneously; quite the opposite, they progress through several distinct stages that can be monitored and studied in order to take proper policy actions to avoid costly crises. Speculation, as an economic cycle, fuels investment activity; therefore, it is not entirely bad unless it is done excessively via manipulative actions which ultimately cause panic among investors. Speculation alone does not result in a crash, but the induced fear spiraling through the broader economy like the venom of a poisonous snake can be enough to rattle markets and cause bubbles to burst. Exactly what happened in the famous first three bubbles; the Dutch Tulipmania (1634-38), the Mississippi Bubble (1719-20), and the South Sea Bubble (1720). We all know that history repeats itself; every time it does, the damage is far greater than before. Three centuries after the famous first bubbles, the 21 st century began with its own famous three bubbles; the Internet Bubble (the dot.com crisis of 2002), the U.S. Housing Bubble (the subprime crisis of 2006-07 followed by the 2008 global financial crisis), and the Cryptocurrency Bubble (Bitcoinmania).
Bubbles have become ubiquitous. This ubiquity has stimulated research over the past three decades into bubbles in history. In this article, we provide a systematic overview of research into historical bubbles. Our analysis reveals that there is no coherent approach to the study of bubbles and much of the debate has unhelpfully focussed on the rationality/irrationality dichotomy. We then suggest a new framework for the study of historical bubbles, which helps us understand the causes of bubbles and their economic consequences. We conclude by suggesting ways in which business history can contribute to the study of historical bubbles.
Cryptocurrencies such as Bitcoin have fascinated technologists and investors alike. They have become prevalent, with over 2,000 Bitcoin-like cryptocurrencies now in use. Most jurisdictions have not regulated cryptocurrencies. Whether existing regulations apply to cryptocurrency turns ultimately on if we classify cryptocurrencies as currencies, securities, or derivatives, or a money services (transfer) vehicle. In this set of exploratory analyses we seek to classify Bitcoin. We utilize a variety of methods to compare aspects of its behavior to: currencies, asset classes such as derivatives, technology-based products and possible technology-based products such as Ether and the security SPY, and speculative financial bubbles. We find that Bitcoin's behavior more closely resembles a technology-based product, an emerging asset class, or a bubble event, rather than a currency or a security; such that it is correct that existing currency and security laws should not apply to cryptocurrencies.
Study of financial bubbles is the extremely important topic in the modern society. Their formation and dramatic bursts are frequently considered to have a massive impact on most of the fields all over the world. Although the literature presents plenty of reviews on bubbles, crashes, and financial crises, the debate is still open even on whether or not bubbles can persist in modern asset markets. The idea of usage of econometric tests to detect these bubbles are not new and can be classified into 6 groups namely, tests based on the variance, tests based on unit root, tests based on regimes, tests based on Johansen-Ledoit-Sornette model, tests based on durations and tests based on neural networks. This paper presents a review of research in these areas of detection and analysis of the financial bubbles.
Though it is always mentioned first among the list of obvious manias, no serious effect has ever been expended to investigate the market fundamentals that might have driven the tulip speculation. The paper compiles time series on individual tulip prices and examines market fundamentals potentially driving prices. Most of the "tulipmania" was not obvious madness. High, but rapidly depreciating, prices for rare bulbs is a typical pattern in the flower-bulb industry. Only the last month of the speculation, during which common-bulb prices increased rapidly and crashed, remains as a potential bubble. Copyright 1989 by University of Chicago Press.
The jargon of economics and finance contains numerous colorful terms for market-asset prices at odds with any reasonable economic explanation. Examples include "bubble," "tulipmania," "chain letter," "Ponzi scheme," "panic," "crash," "herding," and "irrational exuberance." Although such a term suggests that an event is inexplicably crowd-driven, what it really means, claims Peter Garber, is that we have grasped a near-empty explanation rather than expend the effort to understand the event.
In this book Garber offers market-fundamental explanations for the three most famous bubbles: the Dutch Tulipmania (1634-1637), the Mississippi Bubble (1719-1720), and the closely connected South Sea Bubble (1720). He focuses most closely on the Tulipmania because it is the event that most modern observers view as clearly crazy. Comparing the pattern of price declines for initially rare eighteenth-century bulbs to that of seventeenth-century bulbs, he concludes that the extremely high prices for rare bulbs and their rapid decline reflects normal pricing behavior. In the cases of the Mississippi and South Sea Bubbles, he describes the asset markets and financial manipulations involved in these episodes and casts them as market fundamentals.
De Speculatie in Tulpen in de Jaren 1636 en 1637, 1. Economisch-Historisch Jaarboek, Martinus Nijhoff, Gravenhage De Speculatie in Tulpen in de Jaren 1636 en 1637, II. Economisch-Historisch Jaarboek, Martinus Nijhoff The Tulipmania in Holland in the Years 1636 and 1637
- N W Posthumus
- N W Posthumus
Posthumus, N.W. (1926). De Speculatie in Tulpen in de Jaren 1636 en 1637, 1. Economisch-Historisch Jaarboek, Martinus Nijhoff, Gravenhage. Posthumus, N.W. (1927). De Speculatie in Tulpen in de Jaren 1636 en 1637, II. Economisch-Historisch Jaarboek, Martinus Nijhoff, Gravenhage. Posthumus, N.W. (1929). The Tulipmania in Holland in the Years 1636 and 1637. Journal of Economic and Business History, Cambridge, May, Vol I.
Verzameling van een meenigte tulipaanen, naar het leven geteekend met hunne naamen, en swaarteder bollen, zoo als die publicq verkogt zijn, te Haarlem in den jaare A. 1637, door P. Cos, bloemist te Haarlem
- P Cos
Cos, P., Verzameling van een meenigte tulipaanen, naar het leven geteekend met hunne naamen, en swaarteder bollen, zoo als die publicq verkogt zijn, te Haarlem in den jaare A. 1637, door P. Cos, bloemist te Haarlem. – Haarlem : [s.n.], 1637. – 75 pi. (See http://www.bib.wau.nl/tulips.) Chancellor, E. (1999). Devil Take the Hindmost (p. 17). New York: Farrar.
Bloemenspeculatie in Nederland
- E H Krelage
Krelage, E.H. (1942). Bloemenspeculatie in Nederland, P.N.Van Kampen and Zoon, Amsterdam, 49–52.
The Tulipmania Legend New York: Center for the Study of Futures Markets
- P M Garber
Garber, P.M. (1986). The Tulipmania Legend. New York: Center for the Study of Futures Markets, Columbia Business School, Columbia University.
War and Peace in Europe
- K Bussmann
- H Shilling
Bussmann, K., & Shilling, H. (1648). War and Peace in Europe, Munster: Osnabruck. 1998.
De Speculatie in Tulpen in de Jaren 1636 en 1637 III, Economisch-Historisch Jaarboek
- N W Posthumus
Posthumus, N.W. (1934). De Speculatie in Tulpen in de Jaren 1636 en 1637 III, Economisch-Historisch Jaarboek, Martinus Nijhoff, Gravenhage. Tulipworld.com, Planting and Care/Climate Zones. Currently, the web address is: http://www.tulipworld.com/ tulip.asp?contentloc=/info/bulbcare/climatezone.shtml Wedgewood, C.V. (1999). The Thirty Years War. London: The Folio Society. Springer
Devil Take the Hindmost (p. 17)
- E Chancellor
Confusion de Confusions
- La De
- J Vega
The Thirty Years War
- C V Wedgewood
Planting and Care/Climate Zones. Currently, the web address is
- Tulipworld
- Com