The Dow Jones and FTSE 100 reached record levels on Friday. The Dow Jones is just shy of 20,000 - see FT video below. At the start of each year, pundits offer up their predictions for the year ahead. The consensus view seems to be that the US and UK markets are probably overvalued and that by the start of 2018, the Dow and FTSE will be at +/- 5%. from their current levels. However, we have no idea what 2017 is going to bring! Two things will have a major bearing on stock markets in 2017 - politics (Trump, Russia, euro, the French election, Turkey etc) and central bank decisions regarding interest rates. It might be a bumpy year for markets.
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.