An asset bubble occurs when the price of a financial asset or commodity rises to levels that are well above either historical norms or its intrinsic value, or both. The problem is that since the intrinsic value of an asset can have a very wide range, a bubble is often justified by the flawed assumption that the asset's intrinsic value itself has skyrocketed or, in other words, the asset is fundamentally worth much more than it was in the past. (For more, see: 5 Steps of a Bubble.)

Some bubbles are easier to detect than others, as for instance with stock market bubbles, because traditional valuation metrics can be used to identify extreme overvaluation. For example, an equity index that is trading at a price-to-earnings ratio that is twice the historical average is likely in bubble territory, although more analysis may be needed to make a conclusive determination. Other bubbles are harder to detect, and may only be identified in hindsight.

A common element that runs through most bubbles is the willingness of participants to suspend their disbelief and to steadfastly ignore the increasing clamor of cautionary signals. Another feature of bubbles is that the bigger a bubble, the greater the damage it inflicts when it finally bursts. On that note, we list below five of the biggest asset bubbles in history, three of which have occurred since the late 1980s--a telling sign of the times.


Source : Investopedia