A speculative bubble is:
A) a situation in which high stock prices cannot be explained by companies' prospects and profits.
B) easy to identify with technical analysis.
C) not based on psychological factors.
D) All of the answers are correct.

Question

Quizplus · Accepted Answer

A speculative bubble is a situation in which high stock prices cannot be explained by companies' prospects and profits. The market becomes driven by speculation and investor optimism, leading to strong demand and price increases. Eventually, the bubble bursts, and stock prices plummet as investors realize the true value of the underlying assets. Technical analysis may be used to identify price trends, but it is not foolproof and cannot always predict the collapse of a bubble. Psychological factors, such as herd mentality and fear of missing out, play a significant role in the formation and bursting of speculative bubbles.

A Speculative Bubble Is