A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation.
Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to groupthink and herd behavior. Bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets. In the laboratory, uncertainty is eliminated and calculating the expected returns should be a simple mathematical exercise, because participants are endowed with assets that are defined to have a finite lifespan and a known probability distribution of dividends. Other theoretical explanations of stock market bubbles have suggested that they are rational, intrinsic, and contagious.
Read more about Stock Market Bubble: Examples, Whether Rational or Irrational, Positive Feedback, Effect of Incentives
Famous quotes containing the words stock, market and/or bubble:
“I have, thanks to my travels, added to my stock all the superstitions of other countries. I know them all now, and in any critical moment of my life, they all rise up in armed legions for or against me.”
—Sarah Bernhardt (1844–1923)
“The market came with the dawn of civilization and it is not an invention of capitalism.... If it leads to improving the well-being of the people there is no contradiction with socialism.”
—Mikhail Gorbachev (b. 1931)
“If the bubble reputation can be obtained only at the cannon’s mouth, I am willing to go there for it, provided the cannon is empty.”
—Mark Twain [Samuel Langhorne Clemens] (1835–1910)