Market Bubble

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.

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.