Speculative Bubble

A speculative bubble occurs when the prices of an asset, like stocks or real estate, rise far above their actual value due to excessive demand and speculation. Investors buy the asset, hoping to sell it for a higher price later, driving prices even higher. This can create an illusion of strong value. Eventually, when the market realizes the prices are unsustainable, confidence drops, leading to a rapid decline in prices, or a crash. Bubbles are often fueled by market psychology and a herd mentality, where many investors follow the crowd rather than relying on fundamental value.