 Stock market bubble A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation. Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to group think and herd behavior. Stocks occur not only in real world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets. In the laboratory, uncertainty is eliminated and calculating expected returns should be a simple mathematical exercise, because participants are endowed with assets that are defined to have a finite lifespan and a known probability distribution of dividends. Other theoretical explanations of stock market bubbles have suggested that they are rational, intrinsic, and contagious. History, historically, early stock market bubbles and crashes have their roots in financial activities of the 17th-century Dutch Republic, the birthplace of the first formal official stock exchange and market end history. The Dutch tulip mania, of the 1630s, is generally considered the world's first recorded speculative bubble or economic bubble.