Leveraging the British Railway Mania: Derivatives for the Individual Investor
AbstractDuring the British Railway Mania of the 1840s the promotion and construction of new railways increased dramatically. These new projects were generally financed by shares with uncalled capital, which allowed investors to make payments on an instalment basis over a period of several years. There is evidence that these assets can be regarded as futures or options, implying that investors were purchasing highly leveraged derivatives. The leverage embedded in these assets multiplied both the positive returns during the boom, and the negative returns during the downturn. It also affected the payment schedule for investors as little capital was required initially, but the subsequent ‘calls for capital’ resulted in deleveraging.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21822.
Date of creation: 31 Mar 2010
Date of revision:
bubbles; financial crises; Railway Mania;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G01 - Financial Economics - - General - - - Financial Crises
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