Like a snowball, the bubble feeds on itself. The hallmark of a bubble is irrational exuberance*- the unfounded economic optimism that sees investors flock around a particular asset class without good reason.ĭuring a bubble, investors bid up the price of an asset beyond its intrinsic value. Asset bubbles are fueled by increased money supply and particular historical circumstances (e.g., rapid technological expansion). Noteworthy examples from history include the stock market bubble of the 1920s that led up to the Great Depression and the real estate bubble of the 2000s.Īn asset bubble occurs when an asset’s price rises rapidly over a short period and trades much higher than its fundamentals suggest. The dot-com bubble is an example of an asset bubble, sometimes referred to as a financial, economic, or speculative bubble. Any testimonials contained in this communication may not be representative of the experience of other eToro customers and such testimonials are not guarantees of future performance or success. Recommended video: The dot-com bubble explained in 3 minutesįinbold is compensated if you access certain of the products or services offered by eToro USA LLC and/or eToro USA Securities Inc. The dot-com bubble timeline: the NASDAQ Composite index during the dot-com bubble and its eventual collapse. It would take 15 years for the Nasdaq to retrieve its peak, which it did on April 24, 2015. The crash saw the Nasdaq index plunge 76.81%, from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on October 4, 2002, culminating in the majority of dot-com stocks going bust and evaporating trillions of dollars of investment capital in its wake. Unfortunately, things started to change in the late 2000s once investors realized many of these companies had business models that weren’t viable, ushering in a bear market that would last around two years and affect the entire stock market. It saw the value of equity markets grow dramatically, with the technology-dominated Nasdaq index rising five-fold during that period. The dot-com bubble was a stock market bubble fueled by highly speculative investments in internet-based businesses during the bull market from 1995 to 2000.
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