Bubbles are indicated to be beginning with the rise of the stock prices, and if the rise persists, then the people tend to have more investment with raising the alarm of the naïve investors. The investors believe that the recent performance of the stock market could be used for making the future forecast and thereby, the future returns were expected to be more which were made by the investors (Huebner, 2007). The rationale investors used to monitor the trading and the performance going on in the stock market. The decisions regarding selling and buying of the shares can be easily made to gain the huge profit. The attitude of most of the investors indicates the risk regarding the buying and the selling of the shares where they face many losses with gaining the chance to earn more profit.
The fall in demand creates lowering the prices of the stocks and the crash is being created. The crash is very much essential since it creates awareness regarding the buying and the selling of the shares. This also creates an unwillingness in the minds of the investors to buy their shares and the unwilling acquire of the shares leads to the cause of the crash. The efficient market hypothesis is undertaken for the study which clearly explains the contributing factor for the asset bubble and the backing of the efficient market hypothesis is being imposed on the association. The changing of the market price is illustrated to be the main reason where the investor cannot expect to earn above the required returns. The combination of the two inside notions establishes an appropriate and efficient market which is being enhanced for the creation of the competition in the current market(Kindleberger and Aliber, 2011). Hence, the balance in the market must be maintained to avoid the downfall of the market.
The different tactics, the formulation of the market crashes and the market bubbles are drawn by the psychological trails that are related to the behavioural economics. This not only aims to the supplant others explanation but also to consider the psychological origins of the bubble behaviour. The attempt is being made for considering the argument regarding the decision making psychological factors. With these psychological factors, the characterization with indicating the extreme fluctuations in the market sentiment can be made and this leads to the collapse and the formation of the bubbles.