Introduction
Asset bubbles occur when the prices of assets like real estate, stocks, and gold rise significantly over a short period, not due to the intrinsic value of the product. A characteristic of a bubble is irrational exuberance – a phenomenon where it seems everyone is buying a particular asset without a good reason. When investors flock to an asset class such as real estate, demand increases, leading to a rise in its price.
Causes of Asset Bubbles
Three main conditions contribute to the irrational exuberance and resultant inflation of assets:
- Low-interest rates: Low-interest rates make borrowing money cheap, which boosts investment spending. However, investors cannot achieve good returns on their investments at these interest rates, so they shift their money to high-yielding, high-risk asset classes, driving a
Source: https://www.thebalancemoney.com/asset-bubble-causes-examples-and-how-to-protect-yourself-3305908
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