Speculative bubble

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A speculative bubble is a rapid run-up in prices caused by excessive buying that is unrelated to any of the underlying factors that normally affect the supply or demand for a commodity or other asset. In such a bubble, speculators usually rush to buy the commodity before the price run-up ends, and that rush is followed by an even greater rush to sell the commodity (unwind positions) when prices reverse.[1]

A stock or commodity is often thought to exhibit a bubble when its price is greater than the value of future income (such as interest or dividends) received by owning it to maturity.

Examples of purported bubbles include the Dutch tulip mania, the Stock Market Crash of 1929, the Japanese property bubble in the 1980s, the dot-com bubble in 2000-2001, and the 2007-2008 U.S. housing bubble.


References

  1. speculative bubble. CFTC.