A market bubble happens when investors bid up the price of an asset to a point that far exceeds its intrinsic value. These bubbles can quickly deflate (or “burst”) when the market realizes the investment has appreciated far beyond its fundamentals.
What is a market bubble?
Investors create these bubbles by pooling money into similar investments they speculate will generate higher returns. An example of a speculative bubble is the “Tulipmania” of 17th century Holland, which pushed the price of tulip bulbs to extraordinary levels that proved unsustainable. Notable recent bubbles include the tech-stock bubble of the late 1990s or the real estate bubble of the 2000s.