What are the main characteristics of a market bubble Looking

What are the main characteristics of a market bubble? Looking for 3 or 4 stong points

Solution

A market bubble is a an economic cycle which initially shows rapid expansion and is followed by a sudden and rapid contraction.

Main characteristics of a market bubble are:

(i) the surge or the rapid expansion in prices that happens suring the initial stages of the cycle is much more than what is warranted by the underlying fundamentals.

(ii) A bubble usually happens in a particular sector and does not engulf the entire market.

(iii) Usually there are too many buyers in a market bubble situation. As there are too many buyers who are willing to buy, the prices shoots up. The price rise happens very quickly and the quantum of rise that takes place cannot be explained by prudent financial models.

(iv) Bubbles can be seen by people i.e when prices rises in a manner as described above, people can feel that it is the onset of a bubble. It means that bubbles are identifiable and they are not invisible.