Top Market Bubbles in the History of Financial Markets

If you are an investor, you should be aware of all the mistakes and missteps that the financial markets have committed. The following are the top market bubbles recorded in the financial market’s history.

Dutch Tulip Bubble

The Tulipmania took hold of Holland in the 1630s and it’s one of the earliest events that featured irrational asset bubble.

According to one report, tulip prices soared 20 times in the months between November 1636 and February 1637. Afterwards, it slipped 99% in May 1637, according to experts.

Similar to a typical market bubble, the Tulipmania consumed a wide cross-section of the Dutch population.

During its peak, some tulip bulbs had prices that were higher than the prices of luxury houses.

South Sea Bubble

The South Sea Bubble came about because a more complex situation. However, just like the Tulipmania, it has become history’s earliest example of a financial bubble.

The South Sea Company was founded in 1711 and acquired a promise of monopoly by the British government on all trades with the Spanish colonies in South America.

Expectant of a similar success to the East India Company, which had booming business with India, investors flocked shares of the South Sea Company.

Directors spread promises of unimaginable wealth in the South Seas, which are the present-day South America.

Shares on the company swelled more than eight times in 1720, from 128 pounds in January to 1050 in June.

Come the subsequent months, the shares collapsed and in turn caused a severe economic crisis.

Real Estate and Stock Market Bubble in Japan

In the modern days, market bubbles are sometimes driven by ultra-stimulating monetary policy. A very good example of this is the Japanese bubble.

In the early 1980s, the yen ballooned 50%, and it caused a recession in 1986. The government had to fight it and it used a program of monetary and fiscal stimulus.

The government’s move paved the way for unbridled speculation in the market. What happened was that Japanese stocks and urban land tripled in value from 19585 to 1989.

During the 1989 peak of the real estate bubble, the value of the Imperial Palace grounds in Tokyo was greater than the real estate in the whole state of California.

Then, the market bubble finally exploded in 1990, which resulted in the country’s “lost decades” of the 1990s and early 2000s.

The Dot-Com Bubble

The Dot-Com bubble of the 1990s has the most remarkable scale and size, and few bubbles could match its features.

Because of the introduction of the internet, a massive wave of speculation poured over the “New Economy” businesses.

And because of this, hundreds of dot-com companies reached multi-billion-dollar status the moment they went public.

The NASDAQ Composite, which is where most of these technology companies, reached levels of under 500 at the beginning of 1990, with a peak of more than 5,000 in March 2000.

The index then crashed not long after, plummeting almost 80% by October 2002 and kicking off a US recession.

Only in 2015 did the index finally reached a new high, or more than 15 years after the previous peak.

US Housing Bubble

Some experts argue that the dot-com bubble pushed US investors to pump their money into real estate in the mistaken belief that that was a much safer asset.

US house prices peaked in 2006, and then slid. This resulted in the average US house shedding one-third of its value by 2009.

The US housing boom and bust had ripple effects on mortgage-backed securities. And that brought about the global economic contraction that was the biggest since 1930s Depression.

It has come down in history as the “Great Recession.”