Asset bubbles

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.

 

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