Market Bubble
A market bubble is an economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate. Market bubbles are often associated with increased economic activity and can be seen as a sign of a strong economy.
History of Market Bubbles
The concept of market bubbles has been around since the 18th century. The most famous example is the South Sea Bubble of 1720, when investors in the South Sea Company drove up the price of its stock to unsustainable levels. This was followed by the Mississippi Bubble of 1719, when investors in the Mississippi Company drove up the price of its stock to unsustainable levels. The most recent example is the Dot-com bubble of the late 1990s, when investors drove up the prices of technology stocks to unsustainable levels.
Comparison of Market Bubbles
| Bubble | Year | Asset | Peak Price |
|---|---|---|---|
| South Sea | 1720 | South Sea Company | £1,000 |
| Mississippi | 1719 | Mississippi Company | £1,000 |
| Dot-com | 1999 | Technology Stocks | $5,000 |
Summary
A market bubble is an economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. The concept of market bubbles has been around since the 18th century, with the most famous examples being the South Sea Bubble and the Dot-com bubble. For more information about market bubbles, visit Investopedia, The Balance, and Investing.com.
See Also
- Economic Bubble
- Stock Market Bubble
- Real Estate Bubble
- Asset Bubble
- Speculative Bubble
- Housing Bubble
- Cryptocurrency Bubble
- Commodity Bubble
- Bubble Theory
- Bubble Economics
