Speculative bubbles as anomaly of modern capital markets
DOI:
https://doi.org/10.12775/EQUIL.2009.004Abstract
Speculative bubbles are one of the main problems that modern economics is dealing with today. It is important problem because there is a straight relationship between bubbles and financial crises about which we hear everyday. From the 17th century ?tulip bubble? to the ?internet bubble? in which the prices of technological company?s shares surged and then collapsed, many investors have lost fortunes of money. What exactly causes so much panic and trouble in financial markets? In the understanding of these phenomena the behavioural finance can play an important role and consequently give us better knowledge of these phenomena. In the following paper, I have analyzed important behavioural aspects of a bubble, including: herd behaviour, information cascade, overconfidence and optimism, representativeness heuristics and conservatism bias. All these aspects will help to better understand structure of a bubble and suggest ways to mitigate the occurrences and collapses of it in financial markets.
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