Term: ASSET BUBBLE

An asset bubble is a period where the price of a particular asset reaches unsustainable levels due to investor enthusiasm. Over the centuries there have been a number of famous asset bubbles. Probably the best known is the Dutch tulip mania which occurred in the 17th century. At the time Holland was booming because of its growing colonial empire. Tulip bulbs went up in price during 1636 and in the first months of 1637 reached absurd levels. Speculators and investors became involved driving prices up and up until eventually the market collapsed leaving many investors penniless. More recently, asset bubbles in a number of commodities in property and in the share market have become well-recognised events. So a bubble refers to the final stages of a bull market where prices rise almost exponentially and lose touch with true value of the asset concerned. In the share market, share prices lose touch with the earnings of the companies which they represent.

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