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Deriving the railway mania

Published online by Cambridge University Press:  01 February 2013

Gareth Campbell
Gareth Campbell*
Affiliation:
Queen's University Belfast
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Abstract

This article argues that the promotion boom which occurred in the railway industry during the mid 1840s was amplified by the issue of derivative-like assets, which let investors take highly leveraged positions in the shares of new railway companies. The partially paid shares which the new railway companies issued allowed investors to obtain exposure to an asset by paying only a small initial deposit. The consequence of this arrangement was that investor returns were substantially amplified, and many schemes could be financed simultaneously. However, when investors were required to make further payments it put a negative downward pressure on prices.

Keywords

bubblesmaniaderivativesleverage

JEL classification

G11: Portfolio Choice • Investment Decisions G01: Financial Crises G12: Asset Pricing • Trading Volume • Bond Interest Rates N23: Europe: Pre-1913
Type
Articles
Information
Financial History Review , Volume 20 , Issue 1 , April 2013 , pp. 1 - 27
Copyright
Copyright © European Association for Banking and Financial History e.V. 2013

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