stock] bubble: The rise in the share price of a company (or all listed companies) to a level that is hardly justified on the basis of basic economic data („fundamentals“ such as assets, profits, position in the market, future sales prospects). – Research has clearly shown that such bubbles – hardly explainable rationally and mostly – are not immediately recognizable. At best, they could be contained (where this is possible, as in the U.S.A.) by raising the minimum margin rates on credit-financed stock purchases accordingly. However, if the central bank were to raise interest rates across the board in order to curb speculative share purchases, then investments to improve or expand the capital stock of the economy would also become more expensive. Sooner or later, this will affect the competitiveness of companies and may have far-reaching consequences for production, exports and employment. – If the bubble bursts, banks are often left with bad debts because many loans were collateralized by assets at inflated prices. As a result, banks will be very reluctant to grant new loans; even new technical progress can therefore only be financed to a limited extent in such a situation. – According to IMF calculations, stock price slumps last on average two and a half years and are associated with losses of four percent in gross domestic product. Financial history teaches that it takes between five and ten years from the emergence of a bubble on stock markets to its bursting. – See stock, swirling, bubble, bubble, speculative, stock market fever, stock market price, boom-bust cycle, crash, deflation, bad, dotcom bubble, gambling effect, hindsight, peak price, housing bubble, Jackson Hole consensus, myopia, Martin principle, market savvy, central banking, milkmaid bull market, Mississippi tumble, zero interest rate, massive selling, panic selling, Poseidon bubble, prosperity, feedback loop, speculative bubble, subprime crisis, free rider, tulip crash, overexposure, exuberance, unreasonable, asset bubble wealth effect, confidence hypertrophy, interest rate differential, interest rate, kept low. – Cf. ECB Monthly Bulletin, November 2010, pp. 75 ff. (textbook presentation; overviews).

Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent!
University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/

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