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Find out how stock market bubbles happen—and why they collapse—in the MoneySense Glossary.
A market bubble occurs when prices (of anything from housing to stocks) rapidly rise to unprecedented levels and then collapse. Bubbles expand as frenzied buyers push prices higher and higher, fuelled by hype and fear of missing out. Bubbles eventually burst when sentiment shifts, sellers vastly outnumber buyers and prices implode. Examples include the Dutch tulip bulb mania of the 1630s, the dotcom stock market bubble of 1990s and the U.S. housing bubble that burst in 2008.
Example: “Home prices are unsustainably high, leading many people to believe the housing market is in a bubble. That can only be confirmed in hindsight, after the bubble bursts.”
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