The South Sea Bubble was the London stock market bubble that collapsed in 1720.
The South Sea Company received a government-backed monopoly over trade with parts of Spanish South America and proposed converting government debt into company shares. Expectations of enormous profits drove its share price dramatically higher, even though the company’s actual trading prospects were far more limited than investors imagined.
Speculation spread through London, and many investors bought shares simply because prices were rising. Parliament passed the Bubble Act in 1720 amid the frenzy, restricting companies formed without a royal charter. When confidence broke later that year, South Sea shares plunged and ruined many investors.
The South Sea Bubble occurred alongside France’s Mississippi Bubble, but they were separate schemes. The South Sea episode is especially associated with Britain and London’s financial market. It became a classic example of speculative excitement, crowd behavior, and the danger of valuing shares mainly on future expectations.