Home › Finance › Speculation & Risk Management › Bubble

Bubble

BUH-buhl /ˈbʌbəl/

nounC1GMATGRE

formalbusinesseconomics

A rapid escalation of asset prices followed by a contraction, often caused by speculative buying rather than intrinsic value.

Refers specifically to an economic phenomenon where asset prices become detached from their fundamental value, often fueled by irrational exuberance and speculation, eventually leading to a sharp collapse.

The story behind the word. The word 'bubble' comes from Middle English bobel, referring to a small sphere of air or gas. Its figurative use, to describe something insubstantial, illusory, or likely to burst, emerged in the 17th century. The financial sense, specifically referring to an unsustainable rise in asset prices, became prominent with the South Sea Bubble of 1720, where the 'bubble' metaphor perfectly captured the rapid inflation and inevitable collapse.

Word relationships

Inflated market: Describes a market with prices that are too high, but 'bubble' implies the impending collapse.
Speculative frenzy: Emphasizes the irrational behavior driving the price increase.
Boom and bust: A cycle of rapid growth followed by a sharp decline, of which a 'bubble' is a key component.

Stable market: A market characterized by steady, predictable prices.
Bear market: A market in which prices are falling, encouraging selling.

Word family

Bubbling (adjective): In the process of forming a bubble (figuratively, an economic bubble).

Collocations

housing bubble
stock market bubble
dot-com bubble
burst a bubble
economic bubble

Idioms & expressions

burst one's bubble

Example sentences

"The housing market bubble of 2008 led to a severe global financial crisis." Economic history
"Some economists fear that the current tech stock rally is another bubble waiting to burst, fueled by excessive speculation." Market analysis
"The Dutch Tulip Mania of the 17th century is often cited as one of the earliest recorded examples of an economic bubble." Historical event

Memory hook

Think of a soap BUBBLE: it looks beautiful and grows large, but it's empty inside and will inevitably BURST, just like a financial bubble. Soap BUBBLE bursts.

When not to use

Do not use 'bubble' to describe normal market fluctuations or a gradual, sustainable increase in asset prices. It implies an unsustainable, inflated state.

Fun facts

The term 'bubble' gained widespread financial use after the 'South Sea Bubble' of 1720 in Britain, a massive stock market crash.

Related words

Speculation, Volatility, Risk

Explore more words

Bust, Boom, Inflation, Contraction, Expansion, Bull