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‘The Greatest Bubble in History’: Stock Prices during the British Railway Mania

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  • Campbell, Gareth
  • Turner, John

Abstract

Although the British Railway Mania has been described as one of the greatest bubbles in history, it has been largely neglected by academics. This paper attempts to redress this neglect by creating a daily stock price index for the 1843-50 period and by assessing the contribution of the many newly-created railways to the bubble-like pattern in stock prices. The paper then examines whether this bubble-like pattern was due to an increase in the stochastic discount factor arising from an increase in the probability of large-scale adoption of railway technology. We find little evidence to support this hypothesis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21820.

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Date of creation: 31 Mar 2010
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Handle: RePEc:pra:mprapa:21820

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Keywords: bubbles; financial crises; Railway Mania;

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  1. Gary S. Shea, 2007. "Financial market analysis can go mad (in the search for irrational behaviour during the South Sea Bubble) -super-1," Economic History Review, Economic History Society, vol. 60(4), pages 742-765, November.
  2. Rappoport, Peter & White, Eugene N., 1993. "Was There a Bubble in the 1929 Stock Market?," The Journal of Economic History, Cambridge University Press, vol. 53(03), pages 549-574, September.
  3. Lubos Pastor & Pietro Veronesi, 2005. "Technological Revolutions and Stock Prices," NBER Working Papers 11876, National Bureau of Economic Research, Inc.
  4. Neal,Larry, 1994. "The Rise of Financial Capitalism," Cambridge Books, Cambridge University Press, number 9780521457385, April.
  5. Peter M. Garber, 2001. "Famous First Bubbles: The Fundamentals of Early Manias," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262571536, December.
  6. Mitchell, B. R., 1964. "The Coming of the Railway and United Kingdom Economic Growth," The Journal of Economic History, Cambridge University Press, vol. 24(03), pages 315-336, September.
  7. Acheson, Graeme G. & Hickson, Charles R. & Turner, John D. & Ye, Qing, 2009. "Rule Britannia! British Stock Market Returns, 1825-1870," The Journal of Economic History, Cambridge University Press, vol. 69(04), pages 1107-1137, December.
  8. Donaldson, R Glen & Kamstra, Mark, 1996. "A New Dividend Forecasting Procedure That Rejects Bubbles in Asset Prices: The Case of 1929's Stock Crash," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 333-83.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  10. Acheson, Graeme G. & Turner, John D., 2008. "The secondary market for bank shares in nineteenth-century Britain," Financial History Review, Cambridge University Press, vol. 15(02), pages 123-151, October.
  11. White, Eugene N, 1990. "The Stock Market Boom and Crash of 1929 Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 67-83, Spring.
  12. François R. Velde, 2007. "John Law's System," American Economic Review, American Economic Association, vol. 97(2), pages 276-279, May.
  13. Campbell, Gareth, 2013. "Deriving the railway mania," Financial History Review, Cambridge University Press, vol. 20(01), pages 1-27, April.
  14. Gary S. Shea, 2005. "Understanding financial derivatives during the South Sea Bubble: the case of the South Sea subscription shares," CDMA Working Paper Series 200512, Centre for Dynamic Macroeconomic Analysis.
  15. Carlos, Ann M. & Moyen, Nathalie & Hill, Jonathan, 2002. "Royal African Company Share Prices during the South Sea Bubble," Explorations in Economic History, Elsevier, vol. 39(1), pages 61-87, January.
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Cited by:
  1. Campbell, Gareth, 2010. "Leveraging the British Railway Mania: Derivatives for the Individual Investor," MPRA Paper 21822, University Library of Munich, Germany.

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