Shorting the Future: Capital Markets and the Launch of the British Electrical Industry, 1880-1892
AbstractDrawing on a comprehensive data set consisting of dividend payments, security prices, and stock exchange disclosures, this paper argues that, contrary to common interpretation, potentially damaging government regulations imposed in 1882 cannot explain the retarded development of the nascent British electrical industry in its first decade. Instead, as informed opinion at the time maintained, wildly inflated expectations had by the spring of 1882 driven the publicly-traded security prices of putative electrical enterprises to manifestly unsustainable levels. When initial demand and operating profits failed to meet these grossly extravagant expectations, �irrational exuberance� quickly turned to equally undisciplined pessimism in a classic case of stock market boom and bust - with predictable consequences, most notably a collapse of subsequent investment and development at a time of great technological ferment, when durable early-mover advantages were being established among electrical manufacturers globally. This debilitating sequence of market boom and bust was further exacerbated by the fact that during the brief boom surprisingly little money was invested in the promising technologies that were available. Technological rather than regulatory risk was the dominant factor in the 1882 electrical debacle, with long lasting consequences.
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Bibliographic InfoPaper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 701.
Date of creation: 22 Nov 2011
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Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-HIS-2011-12-13 (Business, Economic & Financial History)
- NEP-HME-2011-12-13 (Heterodox Microeconomics)
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