Investment bubble is a jump in price of particular investment when price starts increasing faster and faster as long as the price reaches its peak and falls down to a similar to previous level, if there are no other factors.
Sometimes investment bubble elevates only some particular asset class (Tulip Mania case in Holland) sometimes most of them (Japan case) but in most cases a lot of people gets involved in the investment bubble.
Stages of investment bubble:
Investment bubbles aren’t results of highly leveraged modern economy (however, leverage may accelerate the process) and history of investment bubbles reaches for centuries. The psychology of every bubble is quite simple: some economical, social or technological important events drives ‘hot’ asset class up, then speculators step in and speed up the process. But it is not that simple to recognize the bubble until it enters the last stage, because nobody can be precise on the amplitude of the technological or economical event to the lasting prices of assets. And not every stock market crash is an investment bubble.
Investment psychology gains momentum in contemporary business world
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