Rumors have always been the fuel of financial markets. The modern Wall Street saying “Buy on the rumor, sell on the news” would not have been surprising to any Dutch trader in the 17th century. As Joseph de la Vega wrote in Confusion de Confusiones, his book about the Amsterdam Stock Exchange, in 1688:

The expectation of an event creates a much deeper impression upon the exchange than the event itself. When large dividends or rich imports are expected, shares will rise in price; but if the expectation becomes a reality, the shares often fall; for the joy over the favorable development and the jubilation over a lucky chance have abated in the meantime.

The figures shown at the right in this painting of the Amsterdam exchange, painted around the time of de la Vega’s book, appear to trading the latest hot rumor:

 Deliberately spreading false rumors was one of the most effective tactics for profiting on stocks in the 18th century. In his pamphlet “The anatomy of Exchange-Alley,” published in 1719, Daniel Defoe wrote: (more…)