The South Sea Bubble burst in 1720 after heavy speculation in the British South Sea Company.
The company received a government-backed monopoly over trade with parts of Spanish South America, although its realistic trading prospects were far less impressive than promotional claims suggested. It also took on government debt, linking its fortunes closely to British public finance.
Shares rose dramatically as investors expected enormous profits. The excitement spread beyond wealthy financiers, and the company issued stock to increasingly enthusiastic buyers. When confidence weakened, prices fell rapidly, leaving investors with severe losses.
The South Sea Bubble is often discussed alongside John Law's Mississippi Bubble in France, which also collapsed in 1720. They were separate schemes, however. The episode helped establish the enduring use of “bubble” for a market price boom followed by a collapse, and it prompted parliamentary investigations into corruption and insider dealings.