bubbles

Bubbles are typically associated with dramatic asset price increases followed by a collapse. Bubbles arise if the price exceeds the asset’s fundamental value. This can occur if investors hold the asset because they believe that they can sell it at a higher price than some other investor even though the asset’s price exceeds its fundamental value. Famous historical examples are the Dutch tulip mania (1634–7), the Mississippi Bubble (1719–20), the South Sea Bubble (1720), and the ‘Roaring ‘20s’ that preceded the 1929 crash. More recently, up to March 2000 Internet share prices (CBOE Internet Index) surged to astronomical heights before plummeting by more than 75 per cent by the end of 2000.