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Myopic rationality in a Mania

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  • Campbell, Gareth

Abstract

The rationality of investors during asset price bubbles has been the subject of considerable debate. An analysis of the British Railway Mania, which occurred in the 1840s, suggests that investors may have been myopic, as their expectations were only accurate in the short-term, but they remained rational, as they acted in a utility maximising manner given their expectations. Investors successfully incorporated forecasts of short-term dividend changes into their valuations, but were unable to predict longer-term changes. When short-term growth is controlled for, it appears that the railways were priced consistently with the non-railways throughout the entire episode.

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  • Campbell, Gareth, 2012. "Myopic rationality in a Mania," Explorations in Economic History, Elsevier, vol. 49(1), pages 75-91.
    • Handle: RePEc:eee:exehis:v:49:y:2012:i:1:p:75-91
    DOI: 10.1016/j.eeh.2011.10.001
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    Cited by:

    1. Richard S. Grossman, 2015. "Bloody foreigners! Overseas equity on the London Stock Exchange, 1869–1929," Economic History Review, Economic History Society, vol. 68(2), pages 471-521, May.
    2. Chambers, David, 2019. "Commodity Option Pricing Efficiency before Black Scholes Merton," CEPR Discussion Papers 13975, C.E.P.R. Discussion Papers.
    3. David Chambers & Rasheed Saleuddin, 2020. "Commodity option pricing efficiency before Black, Scholes, and Merton," Economic History Review, Economic History Society, vol. 73(2), pages 540-564, May.
    4. Alina Sorescu & Sorin M. Sorescu & Will J. Armstrong & Bart Devoldere, 2018. "Two Centuries of Innovations and Stock Market Bubbles," Marketing Science, INFORMS, vol. 37(4), pages 507-529, August.
    5. Campbell, Gareth & Quinn, William & Turner, John D. & Ye, Qing, 2015. "What moved share prices in the nineteenth-century London stock market?," QUCEH Working Paper Series 15-06, Queen's University Belfast, Queen's University Centre for Economic History.
    6. Richard S.Grossman, 2014. "Bloody Foreigners! Overseas Equity on the London Stock Exchange, 1869-1928," Wesleyan Economics Working Papers 2014-001, Wesleyan University, Department of Economics.
    7. Quinn, William & Turner, John D., 2020. "Bubbles in history," QUCEH Working Paper Series 2020-07, Queen's University Belfast, Queen's University Centre for Economic History.
    8. Campbell, Gareth & Turner, John D. & Walker, Clive B., 2012. "The role of the media in a bubble," Explorations in Economic History, Elsevier, vol. 49(4), pages 461-481.
    9. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    10. Quinn, William, 2016. "Squeezing the bears: Cornering risk and limits on arbitrage during the 'British Bicycle Mania', 1896-1898," QUCEH Working Paper Series 2016-05, Queen's University Belfast, Queen's University Centre for Economic History.
    11. William Quinn, 2019. "Squeezing the bears: cornering risk and limits on arbitrage during the ‘British bicycle mania’, 1896–8," Economic History Review, Economic History Society, vol. 72(4), pages 1286-1311, November.
    12. John D Turner & Qing Ye & Clive B Walker, 2018. "Media Coverage and Stock Returns on the London Stock Exchange, 1825–70," Review of Finance, European Finance Association, vol. 22(4), pages 1605-1629.
    13. Gareth Campbell & Meeghan Rogers, 2017. "Integration between the London and New York Stock Exchanges, 1825–1925," Economic History Review, Economic History Society, vol. 70(4), pages 1185-1218, November.
    14. Gareth Campbell & William Quinn & John D. Turner & Qing Ye, 2018. "What moved share prices in the nineteenth†century London stock market?," Economic History Review, Economic History Society, vol. 71(1), pages 157-189, February.
    15. Quinn, William, 2016. "Technological revolutions and speculative finance: Evidence from the British Bicycle Mania," QUCEH Working Paper Series 2016-06, Queen's University Belfast, Queen's University Centre for Economic History.

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