![]() For example, following a recession or bear market, it’s normal for asset prices to recover sharply. It’s important to note that not all periods of rapid price acceleration are bubbles. Whether you call it the crowd mentality, herd bias, the bandwagon effect or FOMO, there is a self-perpetuating cycle where people want to buy an asset because its price is increasing, driving the price even higher and making even more people want to buy it. Irrational exuberance is a phrase popularized by former Federal Reserve Chair Alan Greenspan to describe the collective enthusiasm among traders and investors that fuels rapidly increasing prices that outstrip underlying fundamentals. ![]() That means people are willing to pay more and more for a security or another asset, above and beyond what’s expected based on things like demand, earnings, revenue or growth potential. ![]() A bubble begins to form when there’s a gathering acceleration in price for an asset that far outstrips the asset’s intrinsic value. How Does a Stock Market Bubble Happen?Ī stock market bubble is driven by raw speculation. Eventually, prices hit a wall and then fall very far, very fast, as the bubble “pops.” Bubbles can occur to all kinds of assets in addition to stocks, from real estate and collectibles, to commodities and cryptocurrencies. A stock market bubble-also known as an asset bubble or a speculative bubble-is when prices for a stock or an asset rise exponentially over a period of time, well in excess of its intrinsic value.
0 Comments
Leave a Reply. |