Price bubbles should not occur in efficient markets because they reflect prices that do not represent fair value.

Question

Quizplus · Accepted Answer

In efficient markets, prices should reflect all available information and incorporate the fair value of the asset. Price bubbles occur when prices rise rapidly beyond their inherent value, and are often the result of herd mentality or speculative behavior rather than rational investment decisions. In an efficient market, there would be no reason for such behavior to occur, as all available information would be reflected in the asset price.

Price Bubbles Should Not Occur in Efficient Markets Because They