Sequestered Capital Theory

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Sequestered capital is capital that is hidden or unseen by the market and therefore difficult to price.
Theory
Developed by economists James McClure and David Chandler Thomas, this economic theory of business cycles is based on a case of information asymmetries where investors are unable to properly price sequestered capital assets, resulting in valuation errors that correct when the information becomes publicly available.
Examples of sequestered capital assets from the research include:
Tulip Bulbs (1636-1637) - buried in the ground in the fall of 1636 while investors bid up the price, only to collapse when the tulip sprouts appeared in February of 1637.
Blind Trusts (1929) - these derivatives, sold to the middle class during the roaring twenties stock market bubble, collapsed as part of the Wall Street crash of 1929 when the New York Stock Exchange ruled that they had to disclose their trust holdings with their third-quarter financial reports, which became public during the reporting week of October 22-29, 1929.
Dotcom companies (1998-2000) - startup companies sequestered in the portfolios of venture capital firms during the Dotcom boom of 1999 and 2000, only to collapse when too many of the firms attempted to go public without any revenues.
Real Estate Derivatives (2005-2007) - the complex real estate derivatives created by Wall Street to finance the housing boom of the early to mid 2000s, only to collapse when it became clear builders had produced too many houses for the market.
Research
Explaining the Timing of the Tulipmania Boom and Bust: Historical Context, Sequestered Capital, and Market Signals, Financial History Review (2017), James E. Mcclure and David Chandler Thomas
Can Sticky Consumption Cause Business Cycles?, Review of Austrian Economics (2017), James E. Mcclure and David Chandler Thomas
New-Product Research and Development: The Earliest Stage of the Capital Structure, The Quarterly Journal of Austrian Economics (2018), James E. McClure and David Chandler Thomas
The Impact of New-Product R&D on the Circular Flow, The American Economist (2018), James E. Mcclure and David Chandler Thomas

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