Asset Bubble

What is an Asset Bubble?

An asset bubble, or speculative bubble, occurs when the prices of assets such as stocks, real estate, or commodities surge far beyond their actual value. This often occurs because investors get overly excited and start buying with the hope that prices will keep going up, creating a gap between what these assets are really worth and their market price.

Key Features of Asset Bubbles

Rapid Price Increase: Prices shoot up quickly, driven by optimism and speculation.

Investor Psychology: Factors like fear of missing out (FOMO) and group mentality lead more people to buy, pushing prices even higher.

Easy Access to Money: When credit is easy to get, more people invest, further inflating prices.

Disconnect from Reality: During a bubble, prices often ignore the actual value of assets, and are driven by emotion and speculation rather than fundamentals.