Cross-Section of a ‘Bubble’: Dividends during the British Railway Mania

Campbell, Gareth (2010): Cross-Section of a ‘Bubble’: Dividends during the British Railway Mania.

Abstract

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
• Language: English
• 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

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