Stock Market Bubble
A Stock market bubble is a situation where the prices of Stocks rise to levels significantly higher than their Intrinsic Value, driven by exuberant market behavior, speculation, and investor sentiment rather than fundamental Economic Indicators. This phenomenon often leads to a rapid increase in Stock prices, attracting more investors, which further inflates the bubble. Eventually, when the reality of the underlying economic conditions sets in, the bubble bursts, causing Stock prices to plummet.
Examples:
- The Dot-com Bubble (Late 1990s – Early 2000s): Rapid growth in internet-based companies led to soaring Stock prices, many of which had little to no profit. The bubble burst in 2000, resulting in massive losses.
- The Housing Bubble (Mid-2000s): In the U.S., real estate prices soared due to speculative buying and easy Credit. The subsequent crash in 2007-2008 led to a financial crisis.
Notable Cases:
- Enron (2000): The company’s Stock price inflated based on misleading financial statements before it collapsed, leading to significant financial losses for investors.
- Bitcoin Surge (2017): Bitcoin prices skyrocketed to nearly $20,000, driven by speculation and media hype, before crashing to around $3,000 in 2018.