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.
Wikipedia
en.wikipedia.org › wiki › Stock_market_bubble
Stock market bubble - Wikipedia
November 14, 2025 - This type of thinking helps to further propagate the bubble whereby everyone is investing with the intent of finding a greater fool. Still, some analysts cite the wisdom of crowds and say that price movements really do reflect rational expectations of fundamental returns. Large traders become powerful enough to rock the boat, generating stock market bubbles.
Investopedia
investopedia.com › terms › b › bubble.asp
Understanding Economic Bubbles: How They Form and Burst, With Examples
August 25, 2025 - Bubbles are typically attributed ... behavior is debated. In equities markets and economies, bubbles shift resources to rapidly growing areas, and when the bubble bursts, resources shift again, causing prices to drop.
Videos
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Major Warning Signs Of This Stock Market Bubble - YouTube
What happens when a stock market bubble pops?
All stock market bubbles will eventually pop, which leads to a stock market crash. This causes share prices to drop suddenly, along with major index valuations such as the Dow Jones Industrial Average or S&P 500.
cmcmarkets.com
cmcmarkets.com › home › learn to trade › trading guides › stock market bubbles
What is a stock market bubble and how do I trade it?
How do you make money from a stock market bubble?
There is no guarantee that you will profit from a stock market bubble, but investors should try and diversify their portfolio as much as possible with assets from other sectors, such as bonds and ETFs. You could also look for sectors that fare well in a bear market, known as “defensive stocks”, such as utility, food or pharmaceutical stocks.
cmcmarkets.com
cmcmarkets.com › home › learn to trade › trading guides › stock market bubbles
What is a stock market bubble and how do I trade it?
Does a stock market bubble lead to a correction?
Usually, when a share price has become too overvalued and can’t keep up with investor sentiment, the price starts to correct itself, more accurately representing the value of the company. Learn more about stock market corrections.
cmcmarkets.com
cmcmarkets.com › home › learn to trade › trading guides › stock market bubbles
What is a stock market bubble and how do I trade it?
CMC Markets
cmcmarkets.com › home › learn to trade › trading guides › stock market bubbles
What is a stock market bubble and how do I trade it?
A stock market bubble is when share prices of stocks rapidly keep climbing to a point where they far exceed their intrinsic value or their earnings. This price bubble, based on speculation, can include all equities in a stock market or those from a specific sector.
U.S. News
money.usnews.com › investing › term › stock-market-bubble
Stock Market Bubble Definition | Investing Dictionary | U.S. News
December 11, 2023 - Recognizing a market bubble in real time and predicting its bursting is very difficult, but there are certain red flags for investors to monitor. Bubbles are typically marked by a prevalent story, such as the idea that a new technology or new way of thinking has permanently transformed the market. ... Low commission rates start at $0 for U.S. listed stocks & ETFs*. Margin loan rates from 4.83% to 5.83%.
Investopedia
investopedia.com › articles › stocks › 10 › 5-steps-of-a-bubble.asp
Understanding the 5 Stages of an Economic Bubble
October 15, 2025 - The term "bubble," in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin.
SmartAsset
smartasset.com › investing › stock-market-bubble
Stock Market Bubbles: Definition and Examples - SmartAsset
May 30, 2023 - They’re buying in hopes of selling while the price is still high. This leads to a cycle of trading based on criteria that has nothing to do with the fundamentals of the companies being traded. If this cycle goes on too long it can profoundly overvalue the underlying assets, creating a stock market bubble that will eventually burst.
Angel One
angelone.in › knowledge-center › share-market › what-is-stock-market-bubble
What is Stock Market Bubble | Angel One
In economics, the phrase "bubble" refers to a scenario in which the price of something—a single stock, a financial asset, or could be an entire sector, market, or asset class—significantly exceeds its underlying value.
Reddit
reddit.com › r/investing › what exactly happens when an stock market bubble "bursts".
r/investing on Reddit: What exactly happens when an stock market bubble "bursts".
January 9, 2021 -
With all of the talk floating around on pretty much any investing related subreddit of the bubble that we are likely in, it is always mentioned that this bubble will inevitably burst and it is always said that is coming soon. I am somewhat new to investing and I don't understand what happens when it bursts. What drives the prices down so dramatically in almost the entire stock market? I understand that it is probably not as simple as one thing every time, but in history, what has been the causes and what could likely be the cause for our future bubble burst?
Top answer 1 of 50
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"it is always mentioned that this bubble will inevitably burst and it is always said that is coming soon" It has been "imminent" and "inevitable" for half a decade on here and then when you do actually get a fairly major decline (December 2018, March of 2020), at the bottom people are certain it's going lower and get very frustrated when the rebound happens. 'It is instead the emergence of unknown unknowns - new and novel risk factors that investors were not previously aware of and had not factored into their expectations/risk appetites, that drive crashes. A crash occurs because it triggers a rapid and synchronous de-risking of portfolios, as people react to the new, unanticipated risk factor, and reposition their portfolios to reflect the increased degree of uncertainty, including the endogenous uncertainty associated with extreme asset price volatility itself (i.e. regardless of its cause, many investors cannot/will not tolerate extremely high degrees of volatility/price declines, and this creates the feedback loop necessary for a crash to occur - i.e. when selling and falling prices beget yet more selling, as de-risking accelerates). Investors get scared, and they decide to increase their cash allocations from (say) 5% to 20%, to 'preserve capital' in the face of the newly-uncertain environment, and 'prepare for future opportunities amidst the coming downturn'. They do this because they believe an abundance of caution to now be warranted given what has become an extremely uncertain/risky outlook, and also because they mistakenly believe that because the economic fallout is likely to last quite some time, that markets will also inevitably continue to go down/remain weak for a long time to come as well. Ego, 'future opportunities' will be significant, and cash will allow them to take advantage of them. The problem with this perspective and behaviour is that it is classic 'first-level thinking', instead of the more desirable second-level thinking necessary in markets (hat tip Howard Marks). What investors fail to understand is that it is precisely the synchronised move to higher cash allocations and a more defensive positioning mirroring their cautious outlook - which they themselves were very much a part of - that caused the market to crash in the first place. If everyone increases cash allocations from 5% to 20% at the same time, markets will crash, regardless of the cause. And that has absolutely been the case, from retail to institutional investors, to insurance companies and other institutions alike (QBE Insurance, for instance, recently came out and said they had "materially de-risked the investment book including exiting all equities, emerging market and high yield debt"; HK Exchanges similarly exited 100% of its equity exposure in March and early April). The thoughtful market observer would ask the question, so what happens next? Most of these investors don't plan to continue to hold 20% cash indefinitely. They are looking to re-deploy it back into equities at a time they perceive to be more opportune. What they really mean when they say that is 'when the outlook is less uncertain and they feel more comfortable', but what they overlook is that sellers will also feel more comfortable at this point; however, the important practical point is that it means they will be future net buyers of equities. Furthermore, they have already sold as much stock as they want/need to sell in order to feel comfortable with their remaining exposure in the face of what they expect will be considerable economic fallout in the medium term. Given their already very cautious outlook, it is therefore unlikely they will sell a whole lot more in the future. What has happened at this point is that a previously unknown unknown has now become a known unknown, and consequently is now already factored into investor risk appetite and market positioning, and so it ceases to have much impact on market prices. And this is true regardless of whether the underlying economy is weak or not, because the economy does not drive stocks prices - demand and supply do. At this point, and in contrast to the intuitions most recently-scared investors harbour, a further market crash actually becomes extremely unlikely, and those sitting in cash hoping for more of the same are very likely to have their hopes dashed. This is why markets almost always bottom well before the real economy, and recover in a manner that confounds most investors. Right when the majority of investors have just finished selling down, raising cash, and positioning themselves cautiously and in preparation for the 'coming downturn' and the 'buying opportunities' sure to emerge therefrom, markets start to rally and the opportunities they had hoped and expected to encounter swiftly disappear. The buying opportunities are not created by the economic downturn per se, but investors preparing for the economic downturn by raising cash. They are left high and dry holding a bunch of cash. They are confused, and perhaps even angry at the market for behaving so irrationally, and ignoring how bad things are in the real economy. They claim investors are ignoring economic realities. They say the rally must be a dead cat bounce. They say bear market rallies are common and investors are being fooled by it. They say investors are too optimistic on the speed of the recovery. They say it's because investors are overly acclimated to 'buying the dip', etc. They use every excuse they can muster to avoid admitting to themselves the sad reality that they may have sold at the bottom, just like patsies do every bear market. What they are really doing is hoping markets go back down so they have a second chance to buy stocks as cheap as they were recently trading, but with so many cashed-up investors similarly hoping for a further pull back, such an outcome is inherently self-defeating. There is simply too much cash on the sidelines waiting for an opportunity to buy the second dip for markets to go down enough to retest their lows." ( https://lt3000.blogspot.com/2020/05/coronavirus-update-from-unknown-unknown.html )
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Think about how markets actually work Buyers and sellers exchange assets (in this case cash for stocks), and they are always matched 50-50. If you have a situation where they are more buyers than sellers, the price goes up, and vice-versa What normally happens is that, if prices go down (if there are more sellers than buyers at $x), new buyers are soon found at lower levels and at same time sellers disappear. Hence the price stabilises, or reverses and starts to rise again In a crash, that imbalance of buyers and sellers doesn't correct itself. Instead, more sellers than buyers appear as the price finds lower levels. That can cause a cascade effect, which is the crash
Russell Investments
russellinvestments.com › content › ri › us › en › insights › russell-research › 2024 › 05 › bursting-the-myth-understanding-market-bubbles.html
Bursting The Myth: Understanding Market Bubbles | Russell Investments
In contrast, a market bubble is marked by unsustainable price increases unsupported by underlying fundamentals. When the bubble bursts, prices crash, causing significant and often permanent losses for investors. If a stock's price is high and appears likely to fall, that doesn’t necessarily mean the stock is in a bubble.
The Motley Fool
fool.com › terms › s › stock-market-bubble
Stock Market Bubble: Definition, Cause, and Investing Strategy | The Motley Fool
July 5, 2025 - Stock market bubbles occur when asset prices inflate without solid business fundamentals. Speculative buying and euphoria among investors are typical drivers of such bubbles. Identifying and avoiding overvalued stocks is crucial in protecting investment portfolios.
ScienceDirect
sciencedirect.com › science › article › abs › pii › S0167268122003481
The mirror of history: How to statistically identify stock market bubble bursts - ScienceDirect
October 21, 2022 - In his summary of bubbles and financial crises, Kindleberger (1978) defines a bubble as the systematic deviation of the market price of a stock from its fundamental value, which is characterized by an acute rise for a certain period followed ...
Bankrate
bankrate.com › investing
5 Sure-Fire Signs Of A Stock Market Bubble | Bankrate
July 18, 2025 - A stock market bubble is a speculative frenzy when stock prices vastly exceed the fundamental value of the companies underlying them. A market as a whole can also be in a bubble if traders buy assets seemingly regardless of their value.
SoFi
sofi.com › learn › content › what-causes-a-stock-market-bubble
What Causes a Stock Market Bubble? | SoFi
September 5, 2025 - This content may include information ... market bubbles occur when speculative trading and investing, fueled by what could be called irrational exuberance, leads to big increases in values for certain assets....
XS
xs.com › en › blog › stock-market-bubble
What Is a Stock Market Bubble? Causes and Effects - XS
August 8, 2024 - That's what happens in the stock market when a bubble forms and then bursts. ... overly optimistic investor behavior, where everyone is eager to buy stocks, driving prices to unsustainable levels.
Forbes Advisor
forbes.com › advisor › investing
What Is A Stock Market Bubble? - Investing
March 27, 2023 - The value of a particular stock (its price) fluctuates based on market trends, company performance, investor sentiment—the overall attitude investors have toward the stock market and whether they believe stock value will rise (also known as bullish) or fall (referred to as bearish)—among other factors.
Yahoo!
ca.finance.yahoo.com › news › look-key-signs-stock-market-162133841.html
Look out for these key signs of a stock market bubble
October 23, 2025 - Certainly, some areas of the market, such as quantum computing and others, are acting like some bubbles. Bubbles are often characterized by a flood of new stock issues or high-premium acquisitions that often mark market tops.
CMC Markets
cmcmarkets.com › home › learn › trading guides › stock market bubbles
A Complete Guide to Stock Market Bubbles | CMC Markets
A stock market bubble is when share prices of stocks rapidly keep climbing to a point where they far exceed their intrinsic value or their earnings. This price bubble, based on speculation, can include all equities in a stock market or those from a specific sector.
Practical Money Skills
practicalmoneyskills.com › home › resources › economy 101
Stock Market Bubbles and Crashes | Practical Money Skills
Economists define a bubble as an economic cycle characterized by rapid expansion, followed by a contraction. In simpler terms, it’s an overheated market (whether it be stocks, bonds, real estate, commodities, technology, etc.) where too many investors become overly eager to buy.
ScienceDirect
sciencedirect.com › science › article › abs › pii › S1057521918302138
Stock market bubbles and anti-bubbles - ScienceDirect
July 27, 2018 - Using a simple model of equity valuation, we define stock market bubbles and anti-bubbles as periods in which the dynamics of valuation is temporarily explosive. We identify a mechanism for the creation and destruction of bubbles and anti-bubbles that depends on the interaction between valuation and expected change in corporate profitability.
Bullish Bears
bullishbears.com › stock-market-bubble
Stock Market Bubble: Definition, Cause, and How It Works
September 1, 2025 - A stock market bubble happens when everything is trading higher than it's actually worth. Fundamentals are off, and then a big drop happens.