Tulipmania

DEFINITION of 'Tulipmania'

Tulipmania was the first major financial bubble. Investors began to madly purchase tulips, pushing their prices to unprecedented highs; the average price of a single flower exceeded the annual income of a skilled worker. Tulips sold for over 4000 florins, the currency of the Netherlands at the time. As prices drastically collapsed over the course of a week, many tulip holders instantly went bankrupt.

BREAKING DOWN 'Tulipmania'

Tulipmania reflects the general cycle of a bubble: investors lose track of rational expectations, psychological biases lead to a massive upswing in the price of an asset or sector, a positive-feedback cycle continues to inflate prices, investors realize that they are merely holding a tulip that they sold their houses for, prices collapse due to a massive sell off and many go bankrupt.

A similar cycle was witnessed during the dotcom bubble.

RELATED TERMS
  1. Dutch Tulip Bulb Market Bubble

    One of the most famous market bubbles of all time, which occurred ...
  2. Froth

    Market conditions preceding an actual market bubble where asset ...
  3. Bubble Theory

    A school of thought that believes that the prices of assets can ...
  4. Bubble Company

    A company whose valuation greatly exceeds that suggested by its ...
  5. Bubble

    1. An economic cycle characterized by rapid expansion followed ...
  6. AWG (Aruban Florin)

    The currency abbreviation for the Aruban florin (AWG), the currency ...
Related Articles
  1. Markets

    Five Of The Largest Asset Bubbles In History

    The five bubbles discussed here were among the biggest in history; their lessons should be heeded.
  2. Managing Wealth

    5 Steps Of A Bubble

    Bubbles are deceptive and unpredictable, but by studying their history we can prepare to our best ability.
  3. Markets

    Examining Credit Crunches Around The World

    Market tops and bottoms have proliferated the financial markets throughout history. Learn how countries dealt with these tough economic periods.
  4. Markets

    Economic Bubble: Toil And Trouble!

    You might like the idea of profiting from a bubble, but you’d probably like to avoid suffering from its aftermath. Here is how an economic bubble works.
  5. Markets

    How Does a Bubble Form and Burst?

    A bubble forms when prices grow beyond their true value.
  6. Markets

    Should the Fed Be More Worried About Asset Bubbles?

    While the Fed should be concerned that assets bubbles might impact economic stability, monetary policy is not the best tool to mitigate this threat.
  7. Managing Wealth

    Economic Meltdowns: Let Them Burn Or Stamp Them Out?

    Whether the Fed should intervene in market bubbles is up for debate. Learn about both sides here.
  8. Markets

    Some Industries Are More Bubbly Than Others

    Investors who want to avoid future bubbles should learn from the past in order to protect their investments.
  9. Markets

    How Do Asset Bubbles Cause Recessions?

    Understand how asset bubbles often lead to deep, protracted recessions. Read about historical examples of recessions preceded by asset bubbles.
  10. Managing Wealth

    Investopedia's Oddest Business and Investing Terms

    The oddest business and investing terms found on Investopedia.
RELATED FAQS
  1. What do people mean when they say there is a "bubble" going on in the market, such ...

    A financial "bubble" refers to a situation where there is a relatively high level of trading activity on a particular asset ... Read Answer >>
  2. What is an echo bubble?

    To understand the term "echo bubble", you have to understand what a bubble is. A financial or economic bubble occurs when ... Read Answer >>
  3. What lessons did the tech bubble crash give to investors in the Internet sector?

    Learn how investors contributed to the dot-com bust and how Internet services and investing has changed since the market ... Read Answer >>
  4. Can the Efficient Market Hypothesis explain economic bubbles?

    Learn about the nuanced relationship between the efficient market hypothesis and economic bubbles and the requirements and ... Read Answer >>
  5. What can capitalization rate tell investors about real estate bubbles?

    Learn about capitalization rates and what information investors may glean from them with regard to bubbles. Explore how rates ... Read Answer >>
  6. What economic factors influence corporate bond yields?

    Discover how to notice the early warning signs of a tech bubble. Like most bubbles, a rapid rise in asset values, is usually ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center