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

Publication Date
  • G12 - Asset Pricing
  • Trading Volume
  • Bond Interest Rates
  • G11 - Portfolio Choice
  • Investment Decisions
  • N23 - Europe: Pre-1913
  • G01 - Financial Crises
  • Economics


Historical ‘bubbles’ are often attributed to mispricing, but the empirical analysis of such episodes has been limited. This paper examines a notable but academically neglected 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 main finding is that the cross-sectional variation in stock prices, in every week of the sample, is explained by the cross-sectional variation in dividends, growth and risk, with no significant differences between the railways and non-railways. This implies that an economic bubble was not responsible for the rise and fall in the prices of railway assets at this time.

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