Froth

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.

BREAKING DOWN '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. Inflation

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

    A theory that states it is possible to make money by buying securities, ...
  3. Crash

    A sudden and significant decline in the value of a market. A ...
  4. Irrational Exuberance

    Unsustainable investor enthusiasm that drives asset prices up ...
  5. Bubble

    1. An economic cycle characterized by rapid expansion followed ...
  6. Fed Speak

    A phrase used to describe former Federal Reserve Board Chairman ...
Related Articles
  1. Active Trading Fundamentals

    How The Power Of The Masses Drives The Market

    Market psychology is an undeniably powerful force. Find out what you can do about it.
  2. Active Trading Fundamentals

    Behavioral Finance

    Learn the science behind irrational decision making and how you can avoid it.
  3. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  4. Economics

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  5. Economics

    Negative Interest Rate Policy (NIRP)

    A negative interest rate policy is an unconventional monetary policy tool in which nominal target interest rates are set below zero.
  6. Economics

    A History Of U.S. Monopolies

    Here are a few of the most notorious monopolies in U.S. history.
  7. Economics

    Understanding the American Dream

    The American dream is the belief that anyone, regardless of where they’re born or into what class, can attain their own version of success.
  8. Economics

    The World’s Top 10 Economies

    The world’s largest economy is the United States in terms of nominal GDP.
  9. Term

    How Economies Depend on Sales

    A sale is a transaction in which a buyer receives goods or services, and the seller receives money or some other form of compensation.
  10. Economics

    The Efficient Market Hypothesis: Settling the Great Debate

    An understanding of neuroscience and the decision-making process provides a resolution to the decades-old debate between proponents and critics of the Efficient Market Hypothesis.
RELATED FAQS
  1. What does 'froth' mean in terms of the real estate market?

    On May 20, 2005, while addressing the Economic Club of New York, the now former Federal Reserve chairman Alan Greenspan commented ... Read Full Answer >>
  2. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  3. Is North Korea a developed country?

    North Korea is one of the poorest and least developed countries in the world. It is far from a developed country. Because ... Read Full Answer >>
  4. Is Mexico a developed country?

    As of 2015, Mexico is not a developed country. However, it beats the majority of its peers in the developing world on most ... Read Full Answer >>
  5. Is China a developed country?

    Despite having the world's second-largest economy and third-largest military, China is still, as of 2015, not classified ... Read Full Answer >>
  6. Is Greece a developed country?

    Greece is a developed country by most meaningful metrics. However, its financial struggles have been well documented in the ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center