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Asset Price Bubble

A sustained rise in the prices of financial assets such as housing and equities which takes their values well above long run sustainable levels. Prices can be driven because expectations of future price increases bring new buyers into the market. Aspects of behavioural economics help to explain asset price bubbles.

Some examples of asset price bubbles include:

  1. The dot-com bubble of the late 1990s: During this time, the stock prices of technology companies, particularly internet-based companies, soared to unsustainable levels. When the bubble burst, many of these companies went bankrupt and the stock market declined significantly.
  2. The housing bubble of the mid-2000s: During this time, housing prices in many parts of the United States and other countries rose to unsustainable levels, fueled by easy credit and speculation. When the bubble burst, housing prices plummeted and many people lost their homes.
  3. The bitcoin bubble of 2017: During this time, the price of bitcoin, a digital cryptocurrency, soared to extremely high levels. However, the price was not supported by any underlying economic fundamentals and the bubble eventually burst, leading to a sharp decline in the price of bitcoin.

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