Global stock markets and commodity prices have been on a downward trajectory over the past month. Why? Markets have been spooked by mixed economic signals coming from the US and more hawkish sentiment from central banks (interestingly central bankers have rowed back on this following the turbulence - click here). They have also been concerned by the state of the Eurozone, with even Germany entering the economic doldrums. The Ebola scare has even been blamed for the turbulence of the past few weeks. However, the greatest fear in financial markets is of a slowdown in China. A slowdown in China means a fall in demand for commodities (hence the fall in commodity prices) and a fall in demand for other goods and services (even university education!). Could China's debt-fuelled construction and economic boom be coming to an end?
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.