Bubbles

Abstract

A bubble may be defined loosely as a sharp rise in price of an asset or a range of assets in a continuous process, with the initial rise generating expectations of further rises and attracting new buyers — generally speculators interested in profits from trading in the asset rather than its use of earning capacity. The rise is usually followed by a reversal of expectations and a sharp decline in price often resulting in financial crisis. A boom is a more extended and gentler rise in prices, production and profits than a bubble, and may be followed by crisis, sometimes taking the form of a crash (or panic) or alternatively by a gentle subsidence of the boom without crisis.