Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Asset Bubble”
The term 'bubble' refers to an episode where the price of a financial asset rises significantly, often in response to speculation, which results in the asset trading at a substantial premium to its intrinsic value. When the bubble bursts, the price of the financial asset falls sharply leaving investors with reduced wealth.
When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely - at which point the bubble "bursts".
This may impact discretionary spending and hinder economic growth. Central banks attempt to keep an eye on asset price appreciation and take measures to curb high levels of speculative activity which may make prices vulnerable to a sudden correction. The term 'bubble' was first used in 1720 in reference to the South Sea Bubble Crisis and more recently has been applied to Japan in the 1980s and even 'dot-com' companies in the late 1990s.

By Barry Norman, Investors Trading Academy - ITA

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