Bubble
A period in which asset prices rise far above any defensible estimate of value, sustained by expectations of further rises.
How it is identified
Test: prices are justified primarily by the expectation of selling higher rather than by the asset's cash flows
Unit
qualitative
In depth
The defining feature is the shift in reasoning: buyers stop asking what an asset is worth and start asking what someone else will pay, which is the greater fool mechanism. Bubbles are contested at the time and obvious afterwards, which is hindsight bias — participants during one have arguments, and some are good. They are usually accompanied by leverage, heavy new issuance, wide retail participation and a narrative explaining why traditional valuation no longer applies. Identifying one in advance is genuinely hard, and this dictionary makes no claim about whether any current market condition is one.
Worked example
A company with no revenue trading at ₹40,000 crore because of a stated future opportunity is priced on narrative rather than cash flow. Whether that price is a bubble or an early correct assessment is only settled later.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Bubble” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.