Thursday, August 9, 2018

Phases of an Asset Price Bubble

A typical Asset Price Bubble
Phases of an asset Price bubble

From South Sea bubbles or tulip mania of 16th century to dot com crash of 2000 and housing bubble of 2008, a typical asset price bubble consists of 4 major phases:
  1. New discovery
  2. Early rise
  3. The pace picks up
  4. Subsequent fall
If you want to understand further about how bubbles are formed, grow in size and eventually burst, then "extraordinary popular delusions and the madness of crowds by charles mackay" is a must read. It is a classic effort detailing the follies of mass psychology.

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