An asset bubble is when the value of assets increases much faster than its real underlying value. After a while the price of the asset becomes divorced from a reasonable valuation and a bubble can often be followed by a bust – when prices fall and regain equilibrium.
Asset bubbles could include housing, commodities, such as gold, tulips or shares
Examples of asset bubbles
- Tulip mania of 1630s – rise in value of tulip bulbs
- South Sea bubble 1720 – rise in value of shares in British company
- Rising house prices in the US 1998-2006. House prices rose by nearly 200%, faster than incomes and inflation. This was followed by falling house prices in 07-08
- Rising house Prices in Japan in 1980s. This was followed by a long period of deflation.
- Dot Com Bubble. A rapid growth in the value of internet shares in 1997-2000.