Stock market graph

A stock market bubble is a type of economic bubble taking place in stock markets, in which a wave of public enthusiasm, evolving into herd behavior, causes an exaggerated bull market. When such a bubble takes place, market prices of listed stocks rise dramatically, making them significantly overvalued by any measure of stock valuation. Generally stock market bubbles are followed by stock market crashes.

Stock market bubbles are inconsistent with the "Efficient Markets Hypothesis," which makes their existence a matter of some debate.

Examples

Some of those bubbles are created because of intense and excessive speculation on a new technology or service. The Dot-com bubble of the late 1990s is one example [1]. stockscatalogcom. The biotech boom in the 1980s is another. Still other examples of stock market bubbles include Japanese stocks in the late 1980s, Nifty Fifty stocks in the early 1970s, and Taiwanese stocks in 1987.

Stock market bubbles frequently produce hot markets in Initial Public Offerings, since investment bankers and their clients see opportunities to create new stocks they can then sell at inflated prices. These hot IPO markets misallocate investment funds to areas dictated by speculative trends, rather than the fundamental abilities of assets to generate real returns.

Some of the first documented economic bubbles were the South Sea bubble in England in the 1700s and the Tulip bulb bubble in Holland in the 1600s.