Investopedia explains 'Bubble Theory'
One of the most famous historical examples of an asset bubble is the so-called "tulipmania" in the Netherlands during the 1630s. Contemporary examples include the dotcom bubble in the late 1990s, and the real estate bubble in the U.S. in the late 2000s.
The bubble theory is controversial among those who believe in the theory of efficient markets. Efficient market theorists believe that market participants are rational, and therefore would not buy into asset bubbles if they were readily identifiable. Rather, these theorists argue, clear overvaluations would be driven down to their true value by savvy market participants who would sell the asset, anticipating a decline to the true value.
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