Leveraging the British Railway Mania: Derivatives for the Individual Investor

Gareth Campbell

MPRA Paper from University Library of Munich, Germany

Abstract: During the British Railway Mania of the 1840s the promotion and construction of new railways increased dramatically. These new projects were generally financed by shares with uncalled capital, which allowed investors to make payments on an instalment basis over a period of several years. There is evidence that these assets can be regarded as futures or options, implying that investors were purchasing highly leveraged derivatives. The leverage embedded in these assets multiplied both the positive returns during the boom, and the negative returns during the downturn. It also affected the payment schedule for investors as little capital was required initially, but the subsequent ‘calls for capital’ resulted in deleveraging.

Keywords: bubbles; financial crises; Railway Mania (search for similar items in EconPapers)
JEL-codes: G01 G12 G13 N23 (search for similar items in EconPapers)
Date: 2010-03-31
New Economics Papers: this item is included in nep-his
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https://mpra.ub.uni-muenchen.de/21822/1/MPRA_paper_21822.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/23577/2/MPRA_paper_23577.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/29839/1/MPRA_paper_29839.pdf revised version (application/pdf)

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