From The Journal of Economic History,
Published online by Cambridge University Press: 10 July 2025
Who Wins and Loses in a Bubble? Evidence from the British Bicycle Mania
Abstract
How do different types of investors perform during financial bubbles? Using a rich archival source, we explore investor performance during the British bicycle mania of the 1890s. We find that directors and employees of cycle companies reduced their holdings substantially during the crash. Those holding shares after the crash were generally not from groups stereotypically thought of as naïve, but gentlemen living near a stock exchange, who had sufficient time, money, and opportunity to engage in speculation. Our findings suggest that the investors most at risk of losing during a bubble are those prone to familiarity and overconfidence biases.
Who are the winners and losers in an asset price bubble? In the case where markets are efficient and prices follow an unbiased and unpredictable random walk, then it is unlikely that any group will significantly outperform any other (Malkiel Reference Malkiel2003). However, this can be changed by the presence of heterogeneous information, which might allow informed or well-connected investors to “ride” the bubble (Abreu and Brunnermeier Reference Abreu and Brunnermeier2002, Reference Abreu and Brunnermeier2003; Temin and Voth Reference Temin and Voth2004). Groups that tend to lose out might simply be noise traders, but it could also be vulnerable demographics, those with the least experience or information, or those with a strong preference for risky assets. Alternatively, the biggest losers could be those most vulnerable to behavioral biases, such as overconfidence or familiarity bias (Barber and Odean Reference Barber and Odean2001; Seasholes and Zhu Reference Seasholes and Zhu2010).
This paper investigates this question using a new dataset of inves- tors during and after an asset price reversal in British bicycle companies in 1895–1900. Cycle company shares experienced a substantial price reversal in this period, almost trebling in value in the early months of 1896 before losing 73 percent of their peak value by the end of 1898. The scale of these price movements is similar to other infamous stock market reversals: the dot-com boom saw the NASDAQ index rise 110 percent between December 1996 and its peak in March 2000, before losing 77 percent of its value by October 2002 (Quinn and Turner Reference Quinn and Turner2020, pp. 157–59). Like the dot-com era, the cycle mania was accompanied by a promotion boom: between January 1896 and June 1897, 601 new cycle corporations were established (Quinn Reference Quinn2019, p. 276).
The key advantage of studying the bicycle mania is that companies in this era were legally required to publish annually the names, occupations, addresses, and number of shares held by each shareholder. This makes our dataset complementary to other studies of shareholder clientele changes during an asset price bubble, which typically have much more frequent observations, but much less detail on shareholder identities. For example, Brunnermeier and Nagel (2004) limit their study to hedge funds, Temin and Voth (Reference Temin and Voth2004) investigate the holdings of one private bank, and Greenwood and Nagel (Reference Greenwood and Nagel2009) study mutual fund managers with age used as a proxy for experience. Griffin et al. (Reference Griffin, Harris, Shu and Topaloglu2011) study a broad range of investors but can only distinguish between individuals and various types of institutional investors. For the cycle mania, we have detailed data on the occupations and addresses of all investors in each company in our sample. This allows for a much more granular observation of investor identities, especially at the less experienced end of the spectrum.
We found shareholder registers from the U.K.’s National Archives for 25 cycles, tube and tyre companies at two distinct points in time during the asset price reversal. The first time period chosen is prior to the crash, when the prices of cycle shares had not yet peaked. The second time period was during the crash, when share prices had peaked and were falling. Since all 25 of the companies in the sample were disbanded on unfavorable terms to shareholders within a decade, investors holding shares at this stage are almost certain to have lost money on their investments. There is therefore little risk of capturing investors who successfully “bargain hunted” at the nadir of a cycle. Conversely, investors who held shares prior to the crash, but were absent from the register when prices were falling are much more likely to have profited from the bubble. From each shareholder register, we record the occupation, address, and number of shares held by each investor. We also record whether the investor was a director of the company by checking their names against those listed in the Stock Exchange Yearbook and Birch’s Manual of Cycle Companies (1897).
A large minority of cycle company shareholder registers included all share transfer information over the previous year. These registers recorded the date on which any shares were sold from one investor to another, the number of shares sold, and the name, occupation, and address of the seller (but no information on the buyer). Such registers were found for 10 of these companies, resulting in a dataset of 1,996 transfers.
In order to identify the extent to which changes in ownership can plau- sibly be attributed to the bubble, we also collect this data for a control group. This control group consists of 11 companies that were established between 1895 and 1898, categorized as miscellaneous by Investor’s Monthly Manual, and had not experienced a share price crash at the time of their second surviving shareholder register. The aforementioned data on occupation, address, directorship, and transfers of shares was also collected for the control group firms. This sample provides some indica- tion of how ownership of new companies at this time might be expected to change in the absence of an asset price reversal or crash.
Our data is first used to establish the characteristics of investors during the initial stage of the cycle boom. Relative to the control group, we find that cycle shares attracted a high level of investment from manufacturers, financiers, institutional investors, and professional middle classes, and a low level of investment from gentlemen (i.e., a social class in Britain at the time consisting of men sufficiently wealthy that they did not need an occupation) and women. This suggests that cycle investors came from groups that previous research has associated with a preference for riskier investments, but not from groups associated with a low level of invest- ment experience (Acheson, Campbell, and Turner Reference Acheson, Campbell and Turner2017; Rutterford et al. Reference Rutterford, Green, Maltby and Owens2011)....
....MUCH MORE
Related:November 30, 2025 - Reminder: We believe AI is a bubble and have made the decision to ride the bubble. (bubblelicious since July 1, 2023)
Not one of these bubble-come-lately types, no siree.
Which includes a fresh link to a snappy little paper that has been one of our guiding lights since 2012 [link rotted] and repeated every few years e.g. 2023's On Bubbles:
....Here's the version hosted at MIT:
This paper presents a case study of a well-informed investor in the South Sea bubble. We argue that Hoare’s Bank, a fledgling West End London bank, knew that a bubble was in progress and nonetheless invested in the stock: it was profitable to “ride the bubble.” Using a unique dataset on daily trades, we show that this sophisticated investor was not constrained by such institutional factors as restrictions on short sales or agency problems...
The two most important parts of the paper "II. Hoare’s Trading Performance" and "III. Causes of Success" are definitely worth a couple minutes....