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Leveraging the British Railway Mania: Derivatives for the Individual Investor

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  • Campbell, Gareth

Abstract

During 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.

Suggested Citation

  • Campbell, Gareth, 2010. "Leveraging the British Railway Mania: Derivatives for the Individual Investor," MPRA Paper 21822, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21822
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    References listed on IDEAS

    as
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    5. Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series 364, European Central Bank.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    bubbles; financial crises; Railway Mania;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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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