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Bitcoin and the South Sea Company: A comparative analysis

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  • Michael Demmler
  • Amilcar Orlian Fernández Domínguez

Abstract

This paper examines historical Bitcoin price data together with the price data of a well-known and generally accepted historical asset price bubble (the 1720 South Sea Bubble) with the aim of identifying possible similarities. In order to find empirical evidence of speculative bubble tendencies, the article analyses distribution moments and autoregressive models of time series of both assets. Results show that historical daily prices of both assets—taking into account one year before and one year after the maximum price level—clearly show the two phases of bubble expansion and subsequent crash. Furthermore, various similarities between the South Sea Bubble and Bitcoin can be found in descriptive statistics, such as mean of return, standard deviation, and skewness. Statistical tests also show several explosive moments in the time series of the South Sea Company and Bitcoin returns, which implies that both assets exhibit more than one financial bubble.

Suggested Citation

  • Michael Demmler & Amilcar Orlian Fernández Domínguez, 2021. "Bitcoin and the South Sea Company: A comparative analysis," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 13(1), pages 197-224, March.
    • Handle: RePEc:col:000443:019660
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    Cited by:

    1. Demmler, Michael & Fernández, Amilcar Orlian, 2024. "Explosive behavior in historic NASDAQ market prices," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Bitcoin; cryptocurrency; financial bubble; financial risk; autoregressive model.;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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