Dispelling the Myth of the Naive Investor during the British Railway Mania, 1845–1846
Published online by Cambridge University Press: 28 May 2012
Anecdotal evidence from the British Railway Mania and other historical financial bubbles suggests that many investors during such episodes are naive, thus contributing to the asset price boom. Using extensive investor records, we find that very few investors during the Railway Mania can be categorized as such. Although some interpretations of the Mania suggest that naive investors were expropriated by railway insiders, our evidence is inconsistent with this view as railway insiders contributed substantial amounts of capital, and their investments performed no better than those made by other experienced investors.
- Copyright © The President and Fellows of Harvard College 2012
The authors thank the Economic and Social Research Council (RES-000-22-1391) for financial support. The assistance of archivists at the National Archives, HSBC, and at the Halifax Bank of Scotland was much appreciated. Jill Turner provided great research assistance. Thanks also to Graeme Acheson, Rawi Abdelal, Catherine Duggan, Tom Nicholas, Aldo Musacchio, Noel Maurer, Elisabeth Köll, Patrick Fridenson, Ramana Nanda, and participants at a Harvard Business School business history seminar for their helpful comments.
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49 Sheffield and Hallamshire Share Registers (598/1, 598/2), HSBC Archives, London.
55 This also illustrates the large concentration of investors in London.
57 For the sake of this analysis, London is considered as a county. The pre-Mania railways tended to attract a disproportionate amount of investment from towns and regions which they served; see Broadbridge, , “Sources of Railway Share Capital,” 193Google Scholar.
58 This is somewhat contrary to Thomas, , Provincial Stock Exchanges, 33Google Scholar, who suggests that local sources of finance were unimportant in this period.
59 The price/par ratio reflects the differences between the market price of shares and the amount that investors had already paid up.
61 The upper classes may have invested in schemes that may not have provided much in the way of financial return, but may have provided positive outcomes for them in terms of selling land to railway companies at above market prices or being able to transport agricultural produce at lower cost. Notably, the upper classes were not more likely to invest in local railways than other investors.
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64 Great Western Railway holders of £100 shares and £20 shares 1843, 1845, and 1848, RAIL 251/28, 29, 32, 50, 52 and 54, National Archives, London.
67 For example, the 0.413 coefficient on the women dummy variable in column 2 of Table 8 can be calculated and interpreted as follows. After controlling for other factors, for a woman (when the dummy variable equals 1) the probability of losing is 0.506, and the probability of gaining is 0.219, therefore the ratio of losing to gaining is 2.307, and the log of this ratio is 0.836. For a man (when the dummy variable equals 0) the probability of losing is 0.417, and the probability of gaining is 0.273, therefore the ratio of losing to gaining is 1.527, and the log of this ratio is 0.423. The impact of being a woman (when the dummy variable moves from zero to one) is calculated as the difference in the logs of the ratios, namely 0.836 minus 0.423, which gives the coefficient value of 0.413. The significance of the coefficient indicates that we can be confident in the result, namely that being a woman increases the probability of losing rather than gaining.
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