What is the significance of the South Sea Bubble for today's financial markets

    The failure results suggest that South Sea investors might have been the victims of their own irrational behaviour, or might have suffered from "irrational exuberance", Shiller emphasized in 2000. Garber (1990) state the episode in 1720 is easily understandable as a case of speculators working on the basis of the best economic analysis. Dickson (1967), Scott (1911) and Neal (1988) are misty to explain the reason for the speed and magnitude of the South Sea Company shares decline, even though they attribute it to the appearance of a capital liquidity crisis.

    
    I believe that the core point that both investors and fiscal authorities have to consider the fact that economic bubble, as in 1720, investor behavior can become manic and irrational. Although the South Sea episode was short lived, the boom and bust cycle taking place within every single year. Nevertheless, more extended bubbles, for instance, those experienced by Railway Mania in 1844, by Wall St. Crash in 1929 and by Housing bubble in 2000-now. These bubbles can have more enduring consequences, affecting a serious misallocation of properties and severe economic instabilities. Therefore, central bank and financial institutions need to be aware of the potential damage caused by irrational investor behavior and do need to intervene preventing financial market excesses. It is hoped that a better appreciation of the elements focusing on the South Sea Bubble will inform the current argument on this important event.