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This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Expert led content

+1,000 expert presented, on-demand video modules

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Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

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Build, scale and manage your organisation’s learning

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Connect Finance Unlocked to your current platform

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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What is a Market Bubble?

What is a Market Bubble?

Peter Eisenhardt

30 years: Capital markets & investment banking

In this first part of the series on market bubbles, Peter explains what market bubbles are and how they form by referencing Hyman Minsky's five stages of a market bubble.

In this first part of the series on market bubbles, Peter explains what market bubbles are and how they form by referencing Hyman Minsky's five stages of a market bubble.

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What is a Market Bubble?

3 mins 34 secs

Key learning objectives:

  • Define a market bubble

  • Understand the five stages of a bubble

Overview:

Market bubbles are caused when optimism around an asset drives the price well above a rational valuation. Bubbles often start with excitement and end with panic.

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Summary

What is a market bubble?

Market bubbles are when prices of assets rise well above and beyond all accepted analytical means of valuation. Bubbles are caused by many factors, including greed, group-think and herd mentality, and are the subject of in-depth study by behavioural economists.

Markets are made up of human beings, and human beings can be irrational. Emotion drives people to follow and exacerbate trends, and “jump on the bandwagon”. Rising prices attract greater investment. There is a fear of missing out and being left behind.

It can be said that it is human nature to be a pro-cyclical - or momentum - investor, rather than a value investor. Bubbles burst when reality sets in, and prices come crashing down to earth. As an overpriced market is fragile, any number of outside factors - such as an economic downturn or change in monetary policy - can pop a bubble. Bubbles lead to widespread economic hardship. Trust in the economy and financial institutions take considerable time to rebuild.

What are the stages of a market bubble?

  1. Displacement
    • Investors become enamoured with a new paradigm. This could be an exciting new opportunity, innovation, or technology.
  2. Market Boom
    • Prices rise slowly at first, but gain momentum as more and more participants enter the market. The asset attracts increasing attention. Credit is made available for purchase of the asset.
  3. Euphoria
    • Caution is thrown to the wind, and prices skyrocket. Valuations reach extreme levels. New valuation measures and metrics emerge to justify ever higher prices.
  4. Bursting of the Bubble
    • A single or several events signal that the asset isn’t equal to its lofty valuation. Some have called this the “Minsky Moment”. Those with first-hand understanding of the asset and smart money, cash out, taking profits. The bubble is now pricked and the rapid inflation phase is over. Prices may remain relatively high for a while, but warning signs are flashing.

  5. Panic
    • Asset prices plunge as the investment does not generate returns. Investors and speculators are faced with margin calls and forced to liquidate. This selling leads to further drops in price, triggering still more sales. Many investors are willing to get out at any price.

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Peter Eisenhardt

Peter Eisenhardt

Peter has over 30 years experience working in banking. He has held several senior positions in international investment banks. Peter is now the Secretary General of the International Council of Securities Associations

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