Bubble

A bubble is an economic event where the market price of an asset rises rapidly. Usually, this sudden rise of price is followed by a crash or a drop. Like most market phenomenon, this too is driven by market behaviour. A bubble can occur at any time. During a bubble, there is a large transfer of money to parts of the market experiencing rapid growth. Once the bubble has burst, the wealth is transferred back.

There can be many reasons as to why the market behaves this way. The dot-com bubble of 2000 was fueled by the collective illusion that internet based businesses will have very high leverage and low costs to run a business. However, that was not the case. Making an internet business viable was hard. The speculation led to a huge increase in prices of such companies.

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