Behavioral Finance At The World's Showtime Stock Exchange

We've looked at the marketplace seat for the Dutch East Republic of Republic of India stock a few times.
2017's "Mokyr: 'How Europe became so rich":

Because Dutch is the linguistic communication of love?
No?
Then I orbit up. How did Europe locomote so rich?
From Aeon:...

Here's the introduction to 2012's "The World's First Stock Exchange (and firstly bear raid, firstly dividend, firstly equity derivatives...)'":

‘This lilliputian game could select inward to a greater extent than coin than contracting charter parties for ships leap for England’, wrote Rodrigo Dias Henriques to Manuel Levy Duarte on 1 Nov 1691.1 Dias Henriques was referring to the ‘game’ of trading shares of the Dutch East Republic of Republic of India Company (Verenigde Oost-Indische Compagnie, VOC, founded 1602) together with its derivatives* on the Amsterdam securities market.

H5N1 marvelous slice of scholarship from the University of Amsterdam.
VOC=Vereenigde Oost-Indische Compagnie "United East Republic of Republic of India Company" was created ii years after the British East Republic of Republic of India Company.

THE WORLD’S FIRST STOCK EXCHANGE

How the Amsterdam marketplace seat for Dutch East Republic of Republic of India Company
shares became a modern securities market, 1602-1700

Also from that post, the firstly dividends were non paid for 7 years but ane time they started...

...Shareholders could collect their firstly dividend inward Apr 1610: 75% of the nominal value of their portion inward mace.39 In Nov of that same year, roughly other 50% inward pepper was distributed, together amongst 7.5% inward cash – the latter distribution was exclusively for those shareholders who had also collected the pepper. In March 1612, a distribution of 30% inward nutmeg followed.40 Shareholders who had collected all dividends inward sort had received a total of 162.5% of the nominal value of their shares, but the marketplace seat value of the spices proved to endure significantly lower. Shareholders complained that the distributed dividends had a marketplace seat value of exclusively 125%41; the abrupt abundance of spices on the marketplace seat had brought the prices down....

These guys were non believers inward the Modigliani-Miller Dividend Irrelevance Theorem...

In 2016's "Frontrun the Bank of England for Fun together with Profit" old FT Alphavillein David Keohane [now FT Paris] jogged my retention amongst his "Confusion together with the BoE’s corporate bond buying scheme":

...Re: Mr. Keohane's headline, I couldn't assist thinking of De la Vega's 1688 majority Confusion of Confusions regarding the trading of Dutch East Republic of Republic of India Company stock.
The analysis inward The Confusion of Confusions :  Between Speculation together with Eschatology is a expert introduction.

As another review puts it:

...He shows us all the tricks of the merchandise such equally front-running large orders together with spoofing the marketplace seat amongst simulated tidings to attain a to a greater extent than favorable trading price.

 1688. 

Which leads us to today's headline story from Taylor & Francis Online (style note: past times using the abbreviation CC rather than Confusion de Confusiones the writers relieve thousands of letters):

Behavioral Finance inward Joseph de la Vega's Confusion de Confusiones

Abstract

In this paper, nosotros link Joseph de la Vega's locomote Confusion de Confusiones, written inward 1688, amongst electrical flow behavioral finance together with advise that Vega endure considered the firstly precursor of modern behavioral finance. In improver to describing excessive trading, overreaction together with underreaction, together with the disposition effect, Vega vividly portrays how investors behaved 300 years agone together with includes interesting documentation on investor biases, such equally herding, overconfidence, together with regret aversion.

INTRODUCTION

Research on behavioral finance has seen explosive increase inward the terminal 30 years. However, nosotros tin line evidence of behavioral finance inward writings earlier this period. In this paper, nosotros claim that the locomote Confusion de Confusiones (hereafter CC), written past times Joseph de la Vega inward 1688, is the firstly written report nosotros select a tape of that documents investor biases together with thence is a clear precursor of the electrical flow behavioral finance literature.

Joseph de la Vega's locomote has been widely studied from dissimilar points of view. He wrote virtually various subjects, primarily philosophy together with poetry. His active commercial life began inward Amsterdam inward 1683. CC was a resultant of his fiscal experience. This is the firstly together with oldest majority virtually the stock central together with fifty-fifty today is a expert description of fiscal transactions.

As amongst every firstly majority of its class, roughly authors (Neal [1983] Neal, L. “Efficient Markets inward the Eighteenth Century. The Amsterdam together with London Stock Exchanges.” In J. Atack (ed.), Proceedings of the Business History Conference, Urbana, IL, 1983. [Google Scholar]) select conferred on it corking importance inward the constitution together with operations of other markets, such equally the London Stock Exchange. This locomote has been studied non exclusively past times economists (Perramon [2011] Perramon, J. M. Influència de la Informació Económica en la Borsa a Confusión de Confusiones. Barcelona: Universitat Autònoma de Barcelona, 2011. [Google Scholar], Leinweber together with Mandhavan [2001]) but also past times historians (Gelderblom together with Jonjer [2005], Petram [2011] Petram, L. O. “The World First Stock Exchange: How the Amsterdam Market for Dutch East Republic of Republic of India Company Shares Became a Modern Securities Market, 1602-1700.” University of Amsterdam: Faculty of Humanities, 2011. [Google Scholar]). H5N1 sign of the importance of this majority is that the European Federation of Stock Exchanges (FESE) offers an annual prize inward the holler of José de la Vega to the best written report on fiscal markets.

This majority is non a locomote on stock exchanges or economics, nor is it a legal analysis. It acts to a greater extent than equally a description of the get-go of the activities together with games of the stock exchange. Nobody past times that fourth dimension had tried to sympathise together with depict this activity. Even inward Amsterdam, at that spot was no technical locomote virtually this frantic activity.

The trend of Vega's majority is real rhetorical together with makes frequent references to Latin together with Greek mythology, rendering it hard for modern readers to approach. Vega is aware of this difficulty but prefers to endure understood past times exclusively a few readers.

There volition endure readers capable of agreement all of what I say. Perhaps at that spot volition non endure many but at that spot volition endure roughly together with this is what I want. (para. 142)

It is evident from the reading of this majority that stock central activity is something acre of written report to all sorts of uncertainty. The prices of the ii companies together with so traded inward Amsterdam varied wildly due to natural phenomena or to the irrational activity of the traders. In turn, tidings that was true, false, together with invented complicated the formation of prices. Joseph de la Vega detects together with colorfully documents roughly investor behaviors that currently are frequent topics inward the behavioral finance field. In addition, he offers several pieces of advice that anticipate the electrical flow dry ground of behavioral finance.
Other precursor studies of behavioral finance select been identified, such equally the 1896 locomote past times Gustave le Bon, The Crowd: H5N1 written report of the Popular Mind, an influential majority on social psychology, together with Selden's [1912] Psychology of the Stock Market: Human Impulses Pb to Speculative Disaster, but all of these studies were written afterwards than CC.

Using the taxonomy of applications of behavioral finance described past times Barberis together with Thaler [2005] Barberis, N. together with R. Thaler. “A Survey of Behavioral Finance.” In R. Thaler (ed.), Advances inward Behavioral Finance vol.II. New York: Russell Sage Foundation together with Princeton University Press, 2005, pp. 1–75. [Google Scholar]—the cross-section of average returns, closed-end funds together with comovement, investor behavior, together with corporate finance—the locomote of Joseph de la Vega tin endure framed inward the expanse of documenting investor behavior. In addition, inside this broad acre of studies on investor behavior, CC focuses exclusively on roughly of the primary biases.

Vega's book, CC, written inward Spanish, was translated into Dutch inward 1939, together with roughly scripts were translated into English linguistic communication inward 1957. In this paper, nosotros volition use, where possible, the 1957 English linguistic communication translation, but on several occasions nosotros offering the reader the introduce authors’ translation, equally the English linguistic communication translation is non complete. Author's translations are indicated at the goal of quotations. The Castilian version used inward this newspaper is the ane edited jointly amongst the Dutch translation inward 1939, equally it has numbered paragraphs, which facilitates quotation. The paragraph number is specified inward brackets.

The newspaper is organized equally follows. In the minute department nosotros innovate Joseph de la Vega together with his work. In the 3rd department nosotros document the behavioral biases establish inward CC, together with nosotros comment on them. We conclude inward the 4th section. At the goal of the paper, nosotros include an Appendix, where the original Castilian quotes cited along this newspaper tin endure found.

JOSEPH DE LA VEGA AND HIS WORK

Joseph de la Vega is the author of Confusion de Confusiones, but the firstly confusion concerns his ain holler together with birthplace.

His holler varies betwixt his industrial plant for ii reasons. In Kingdom of Spain at that time, a alter of house or kingdom of residence often led to this variation, but also Jews oftentimes changed their names when they converted to Christianity or emigrated (Torrente [1980]).

His menage unit of measurement was from Cordoba, but it is non clear whether he was born inward 1650 inward Cordoba or inward Amsterdam because his parents had immigrated to Amsterdam past times that time.

CC, published inward Amsterdam inward 1688, does non pretend to endure a treatise on the stock exchange; rather, it is “a ready of the experiences of a gambler” (Anes [1986] Anes, G. Introducción: en Confusión de Confusiones. Ámsterdam, 1688. Madrid: Bolsa de Madrid, 1986. [Google Scholar]) that contains references to complex central operations, philosophical elements based on classical culture, together with a consummate description of how the Amsterdam Stock Exchange operated. Joseph de la Vega lived inward the collapse of the Oriental Indies Company of the Netherlands, which financially ruined him....MUCH MORE

If interested, the extracts of Confusion de Confusiones at the Hathi Trust is in all probability the most accessible version online. If your Castilian is upward to it the the version at the Digital Library for Dutch Literature is the most complete. (508 page PDF)
And again, the analysis inward The Confusion of Confusions :  Between Speculation together with Eschatology is a expert introduction.