Practical analysis for investment professionals
24 May 2013

Poll: What is the Primary Cause of Speculative Investment Bubbles?

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers, “What is the primary cause of speculative investment bubbles?”


Poll: What is the primary cause of speculative investment bubbles?

Poll: What is the primary cause of speculative investment bubbles?


Nearly 38% of global respondents to this week’s poll think the behavioral biases of investors are the primary cause of investment bubbles, while 33% of those polled believe responsibility lies with central banks and their easy money policies. Excessive leverage (19%) and government policies (7%) were less favored responses. While investment bubbles are often induced by a confluence of factors, behavioral concepts such as herding and extrapolation are often at play when it comes to speculative bubbles. Similarly, moral hazards, a common unintentional consequence of government policy, alter investor behavior by lowering perceptions of risk and, in turn, driving up asset prices.

Accommodative monetary policy of central banks is also often behind speculative bubbles, and the real estate bubble of the last decade, fueled in large part by the ultra-low interest rate environment, is a prime example. Interestingly, 49% of poll respondents from the Asia Pacific region see central bank policies as the primary cause of investment bubbles — perhaps not surprising in light of the meteoric rise in Japanese stocks in response to aggressive monetary easing recently undertaken in that country.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, is director of Member and Corporate Products at CFA Institute and serves as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

6 thoughts on “Poll: What is the Primary Cause of Speculative Investment Bubbles?”

  1. Roy says:

    How many people voted in this poll?

    1. Roy,

      Thanks for visiting Enterprising Investor and for your question. There were 1,032 responses globally, including 81 in the Asia-Pacific region.

      Dave

  2. julian rey odyssey hernandez says:

    behavioral biases of investors as supported by minsk theory

  3. Nana says:

    What trend, if any, did the responses from Africa point to?

  4. Luke says:

    Very interesting.
    Any views from respondents around Africa?
    and What portion of the poll population did their views constitute?

    1. Jennifer Curry says:

      Hi Luke,

      We do not have data on the geographic location of respondents. Thanks for asking, though.

      Jen

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