Froth

AAA

DEFINITION of 'Froth'

Market conditions preceding an actual market bubble where asset prices become detached from their underlying intrinsic values as demand for those assets drives their prices to unsustainable levels. Market froth marks the beginning of unsustainable rates of asset price inflation.

INVESTOPEDIA EXPLAINS 'Froth'

An interesting example of a frothy market was Holland's tulip bulb market in the early 1600s. The market for tulip bulbs went through a huge run up and crash.

People mortgaged whatever they could to raise cash to trade tulip bulbs. In 1633, a farmhouse changed hands for three tulip bulbs. The market top came in the winter of 1636-37 when a single tulip bulb, left along with 70 other tulip bulbs as seven orphans' only inheritance, sold for 5,200 guilders. Soon after the top, tulip bulbs traded for 1/100 of what they had two weeks earlier.

RELATED TERMS
  1. Crash

    A sudden and significant decline in the value of a market. A ...
  2. Herd Instinct

    A mentality characterized by a lack of individual decision-making ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Greater Fool Theory

    A theory that states it is possible to make money by buying securities, ...
  5. Bubble

    1. An economic cycle characterized by rapid expansion followed ...
  6. Irrational Exuberance

    Unsustainable investor enthusiasm that drives asset prices up ...
Related Articles
  1. How The Power Of The Masses Drives The ...
    Active Trading Fundamentals

    How The Power Of The Masses Drives The ...

  2. What does 'froth' mean in terms of the ...
    Investing

    What does 'froth' mean in terms of the ...

  3. Behavioral Finance
    Active Trading Fundamentals

    Behavioral Finance

  4. 10 Common Financial Terms Every Newbie ...
    Investing Basics

    10 Common Financial Terms Every Newbie ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center