FRM Financial Risk Manager Practice Test

All the factors cause a speculative bubble. As more investors jump into the market due to increasing expectations of future growth, buyers will outnumber sellers. Prices will increase rapidly beyond the reasonable level. Prices fall back down to normalized levels and most investors panic and sell out of their investments. The bubble will burst and most investments will lose their values.

Key Takeaway: The dot.com bubble in 2000 and the housing bubble in the U.S in 2007-2008 are a few examples of speculative bubbles.