A stock market bubble refers to a situation in which the prices of stocks or other financial assets become significantly inflated, detached from their intrinsic value, driven primarily by investor speculation and optimism. It is characterized by a rapid and unsustainable increase in asset prices that exceeds their underlying fundamental value.What is a stock market bubble?
Key features of a stock market bubble include:
It’s important to note that identifying a bubble in real-time can be challenging, as market dynamics and investor sentiment are complex. Bubbles are typically recognized in hindsight, once the market experiences a significant correction. Prudent investors focus on long-term fundamentals, practice diversification, and exercise caution when evaluating market conditions to mitigate the risks associated with potential bubbles.
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