Question

why do Stock Market Bubbles occur? Have there been any Stock Market Bubbles within the past 20 years? Which ones are they? Why investors may have a hard time identifying them?

Answer 1

Why do Stock Market Bubbles occur?

Answer: There are following reasons of stock market bubble:

1. When market is in overbought mode then profit booking comes and investors start selling and booking profit.
2. Stock market bubble also occurs due to change in central Government or other political changes.
3. It happens due to economic changes or economic slowdown also and fluctuation in exchange rate and crude oil prices.
4. It happens due to war or social unrest.
5. Stock market turmoil is the result of other financial crisis in the country.
6. It may also the result of financial institutions investors selling the shares in bulk.

Have there been any Stock Market Bubbles within the past 20 years? Which ones are they?

Answer: Yes, In 2007-2008, due to subprime crisis in USA, stock market crashed and it also affect other country's stock market like India, China etc. In 2006-07, people took loan from banks and other non banking financial institution and built the properties, later on property prices came down due to demand and supply and properties got unsold. Banks could not get their loan money back and got bankrupt, this affect stock market as whole and it was a great turmoil.

Why investors may have a hard time identifying them?

Answer: Investor do not understand in the beginning that is may be a great stock market turmoil. they keep on buying on dips and when market comes down, investors' money get stuck. Some traders who trade on daily basis, lose their money instantly and investors lose the value of their portfolio.