Bubbles and crashes
Bubbles and crashes refer to phenomena in financial markets where asset prices rise rapidly above their true value (a bubble) and then fall sharply when the bubble bursts (a crash). Bubbles often occur due to excessive speculation, where investors buy assets expecting prices to keep rising. When confidence falters, a sell-off happens, leading to a crash. This cycle can affect economies significantly, as financial stability is tied to asset values. Understanding these concepts helps in grasping the risks associated with investing and the importance of rational decision-making in financial markets.
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Bubbles and crashes refer to phenomena in financial markets where asset prices rise rapidly to unsustainable levels (bubbles) and then fall sharply (crashes). A bubble occurs when speculation drives prices beyond their fundamental value, often fueled by excitement and investor behavior. When the bubble bursts, confidence drops, leading to panic selling and significant price declines. This cycle can affect various assets, like stocks or real estate, and has been seen in historical events. Understanding these concepts helps individuals recognize market risks and the importance of informed investing.