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

By Gareth Campbell

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.

Topics: G12 - Asset Pricing; Trading volume; Bond Interest Rates, G11 - Portfolio Choice; Investment Decisions, N23 - Europe: Pre-1913, G01 - Financial Crises
Year: 2010
OAI identifier: oai:mpra.ub.uni-muenchen.de:23580

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