economics

December 28, 2010

Niall Ferguson in his book The Ascent of Money distills the formation of bubbles into five stages:

Filed under: Uncategorized — ktetaichinh @ 3:12 am
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Niall Ferguson in his book The Ascent of Money distills the formation of bubbles into five stages:

1. Some change in economic circumstances creates new and profitable opportunities.
2. Euphoria sets in, whereby rising expected profits lead to rapid growth in share prices.
3. The prospect of easy capital gains attracts first-time investors.
4. The insiders realize that the now-exorbitant price is unsustainable and begin to take profits by selling.
5. As share prices fall, the outsiders stampede for the exits at once, causing the bubble to burst.

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