Investor enthusiasm causes an inflated bull market that drives prices too high, ending in a dramatic collapse in prices.

Question

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This scenario describes a stock market bubble, which is characterized by investor enthusiasm leading to an inflated market and eventually a collapse in prices. This concept falls under the realm of behavioral finance, which studies how psychological and emotional factors influence investment decisions. Efficient market theory posits that all information is reflected in stock prices, while privately held information refers to information only known by a select few investors, which can lead to insider trading.

Investor Enthusiasm Causes an Inflated Bull Market That Drives Prices