Campbell, Gareth (2010): Cross-Section of a ‘Bubble’: Dividends during the British Railway Mania.
Download (934kB) | Preview
Although historical asset price ‘bubbles’ are often attributed to irrationality, the empirical analysis of such episodes has been limited. This paper examines a period known as the British Railway Mania, using a new dataset and a cross-sectional methodology which is unique to the study of historical asset price reversals. The results suggest that investors successfully incorporated forecasts of short-term dividend changes into their valuations, but were unable to predict longer-term changes. When short-term growth is controlled for, it appears that the railways were priced consistently with the non-railways for almost the entire episode. These findings may imply that investors had imperfect foresight, but that they acted consistently.
|Item Type:||MPRA Paper|
|Original Title:||Cross-Section of a ‘Bubble’: Dividends during the British Railway Mania|
|Keywords:||bubbles, financial crises, Railway Mania|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
N - Economic History > N2 - Financial Markets and Institutions > N23 - Europe: Pre-1913
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Gareth Campbell|
|Date Deposited:||01. Jul 2010 00:39|
|Last Modified:||14. Feb 2013 20:22|
Anon. 1845. A Short and Sure Guide to Railway Speculation, a Few Plain Rules How to Speculate with Safety and Profit in Railway Shares, Effingham Wilson.
Bernanke, B. S. 2002. Asset-Price 'Bubbles' and Monetary Policy. Speech delivered at the New York Chapter of the National Association for Business Economics, New York, October 15.
Bernanke, B. S. 2010. Monetary Policy and the Housing Bubble. Speech delivered at the Annual Meeting of the American Economic Association, Atlanta, Georgia, January 3.
Bordo, M. D. & Jeanne, O. 2002. Monetary Policy and Asset Prices: Does 'Benign Neglect' Make Sense? International Finance, 5(2):139-64.
Brunnermeier, M.K. and Julliard, C. 2008. Money Illusion and Housing Frenzies. Review of Financial Studies 21(1):135-180.
Campbell, J.Y. and Shiller, R.J. 1988. The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors. Review of Financial Studies 1(3):195-228.
Campbell, J.Y. and Shiller, R.J. 1998. Valuation Ratios and the Long-Run Stock Market Outlook, Journal of Portfolio Management 24(2):11-26
Course of the Exchange. 1843-1850. Archive in British Library.
Dale, R., Johnson, J.E.V. and Tang, L. 2005. Financial Markets can Go Mad: Evidence of Irrational Behaviour during the South Sea Bubble. Economic History Review 58(2):233-271.
DeMarzo, P.M., Kaniel, R. and Kremer, I. 2008. Relative Wealth Concerns and Financial Bubbles. Review of Financial Studies 21(1):19-50.
Diba, B. and Grossman, H. 1988. Explosive Rational Bubbles in Stock Prices? American Economic Review 78:520-30.
Donaldson, R.G. and Kamstra, M. 1996. A New Dividend Forecasting Procedure that Rejects Bubbles in Asset Prices: The Case of 1929's Stock Crash. Review of Financial Studies, 9:333-383.
Economist. 1844-1845. Archive in British Library.
Economist. 2008. The Beauty of Bubbles, December 18.
Evans, D.M. (1849), The Commercial Crisis, 1847-1848, David and Charles, Devon.
Flood, R.P. and Hodrick, R.J. 1990. On Testing for Speculative Bubbles. The Journal of Economic Perspectives 4(2), 85-101.
Froot, K.A. and Obstfeld, M. 1991. Intrinsic Bubbles: The Case of Stock Prices. American Economic Review 81(5):1189-1214.
Garber, P.M. 2001. Famous First Bubbles, the Fundamentals of Early Manias, MIT Press.
Gurkaynak, R.S. 2008. Econometric Tests of Asset Price Bubbles: Taking Stock. Journal of Economic Surveys, 22(1):166-186.
Kindleberger, C.P. 2000. Manias, Panics, and Crashes: A History of Financial Crises, John Wiley and Sons.
Odlyzko, A. 2010. Collective Hallucinations and Inefficient Markets: The British Railway Mania of the 1840s, University of Minnesota.
O'Hara, M. 2008. Bubbles: Some Perspectives (and Loose Talk) from History. Review of Financial Studies 21(1):11-17.
Parliamentary Papers. 1847. Summary of Returns, Showing the Number of Passengers Carried on 63 railways of the United Kingdom during the Year ending 30 June 1846, the Fares of each Class, and the Receipts from each Class of Passengers, and for Goods, LXIII, p.179.
Parliamentary Papers. 1851. Railways. Return, showing the Number of Passengers Conveyed on All the Railways in England and Wales, Scotland, and Ireland, respectively, during the half-year ending the 30th June 1850, LI, p.229.
Pástor, L. and Veronesi, P. 2006. Was there a Nasdaq Bubble in the Late 1990s? Journal of Financial Economics 81(1):61-100.
Pástor, L. and Veronesi, P. 2009. Technological Revolutions and Stock Prices. American Economic Review 99(4):1451-1483.
Persyn, D. and Westerlund, J. 2008. Error Correction Based Cointegration Tests for Panel Data. Stata Journal 8(2):232–241
Povel, P., Singh, R. and Winton, A. 2007. Booms, Busts, and Fraud. Review of Financial Studies 20(4):1219-1254.
Railway Times. 1843-1850. Archive in British Library.
Shiller, R. 1981. Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends? American Economic Review 71:421-436.
Voth, H.J. 2003. With a Bang, not a Whimper: Pricking Germany's ‘Stock Market Bubble’ in 1927 and the Slide into Depression. Journal of Economic History 63(1):65-99.
West, K. 1987. A Specification Test for Speculative Bubbles, Quarterly Journal of Economics 102:553-80.
Westerlund, J. 2007. Testing for Error Correction in Panel Data. Oxford Bulletin of Economics and Statistics 69: 709–748.
Available Versions of this Item
Cross-Section of a ‘Bubble’: Stock Prices and Dividends during the British Railway Mania. (deposited 05. Apr 2010 02:21)
Cross-Section of a ‘Bubble’: Stock Prices and Dividends during the British Railway Mania. (deposited 20. Apr 2010 20:37)
- Cross-Section of a ‘Bubble’: Dividends during the British Railway Mania. (deposited 01. Jul 2010 00:39) [Currently Displayed]
- Cross-Section of a ‘Bubble’: Stock Prices and Dividends during the British Railway Mania. (deposited 20. Apr 2010 20:37)