Campbell, Gareth (2010): Leveraging the British Railway Mania: Derivatives for the Individual Investor.
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This paper analyses the relationship between leverage and asset price ‘bubbles’ by examining an historical episode known as the British Railway Mania. During this period there was a substantial expansion in the number of railways promoted, most of which were financed by shares which could be purchased on an instalment basis. An analysis of a new and comprehensive dataset suggests that these assets can be modelled as futures or options, implying that investors were purchasing highly leveraged derivatives. The leverage embedded in these assets amplified returns and made it possible to obtain exposure to an asset for a small deposit. However, during the downturn negative returns were also magnified and investors had difficulties paying further instalments. Although leverage may have initially increased demand for these assets, they did not become overpriced, possibly due to a substantial increase in their supply.
|Item Type:||MPRA Paper|
|Original Title:||Leveraging the British Railway Mania: Derivatives for the Individual Investor|
|Keywords:||bubbles, financial crises, Railway Mania|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
N - Economic History > N2 - Financial Markets and Institutions > N23 - Europe: Pre-1913
G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Gareth Campbell|
|Date Deposited:||30. Jun 2010 13:47|
|Last Modified:||13. Feb 2013 07:01|
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