A Speculative bubble , also called “stock exchange bubble” or “financial bubble”, is a very excessive rise of the prices on a gone of financial credits (actions, obligations, Foreign exchange rate), Immobilier, raw materials, etc

In this kind of sometimes said situation " exubérante" , usual logics of economic valorization of the credits do not apply any more. It is by this rupture of logic that a bubble differs from simple a Marché bull.

Causes

A bubble is due often to the combination:
  • of fundamental economic appearing, wrongly or rightly, favorable and durable, and which constitutes to some extent the base of the movement;
  • of Imitation S euphoric collectives (by seeing the others buying and earning money, thanks to the rise of the courses, one wants to take part oneself in the festival),
  • and sometimes true Mythes (the myth of the golden delicious servant boy or facility that there would be to earn money while speculating without slackening, in the years 1980 or the Nouvelle economy in second half of the years 1990) which one evokes in a climate of Rumeur S .

Demonstration

There is bubble as from the moment when the reasoning of arbitration between the various credits does not apply any more and where the logic of pricing of the rates becomes primarily autoreferential : a high price inordinately today is justified only by the belief that it will be higher tomorrow , whereas the comparison with the prices of other credits cannot justify it.

This kind of more or less irrational behavior of the markets, creating anomalies of price, fact part of the phenomena which the behavioral Finance studies.

History, evolutions

The history of the financial bubbles is spread out since the Tulipomanie 17th century in Holland until the Bulle Internet of the end of the Années 1990. The history of the financial bubbles can be recalled by the history of the monetary and financial Crises.

The real estate bubble which France currently undergoes is an example

Often, a bubble is followed by a crash, certain bubbles are of this fact detailed in the article Krach. The implosion follows the explosion, panic follows the euphoria.

Squeeze and Corner

A bubble presents basic differences with two other phenomena:
  • the Squeeze , in Franglais ( shorts squeeze , in English) which is a situation of imbalance between the offer and the request which brings, for technical reasons (required regulatory to deliver credits before a certain date, for example), short sellers to enclose their positions at excessively high prices;
  • the Corner , which is the same thing, but organized and planned by one or more individuals. One of most famous is the corner of the silver organized by the Hunt brothers in 1980, but there were well others of it, in particular on the markets of Government loans and those of agricultural produce being the subject of a Futures market.

See too

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