Campbell, Gareth (2010): Bubbles and Leverage.
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This paper analyses the relationship between leverage and asset price bubbles. During an important historical bubble 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:||Bubbles and Leverage|
|Keywords:||bubbles, financial crises|
|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:||04. Apr 2011 07:09|
|Last Modified:||21. Feb 2013 08:40|
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Available Versions of this Item
Leveraging the British Railway Mania: Derivatives for the Individual Investor. (deposited 07. Apr 2010 01:49)
Leveraging the British Railway Mania: Derivatives for the Individual Investor. (deposited 30. Jun 2010 13:47)
- Bubbles and Leverage. (deposited 04. Apr 2011 07:09) [Currently Displayed]
- Leveraging the British Railway Mania: Derivatives for the Individual Investor. (deposited 30. Jun 2010 13:47)