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What Is a Frothy Market? Overview, How It Works, Example

By Rachel WarrenUpdated Jun 6, 2025 at 9:05 PM | Fact-checked by Robin Hartill, CFP

Key Points

  • Frothy markets are characterized by rapid rises in prices due to speculation, not fundamental value.
  • In frothy conditions, investors chase short-term gains, increasing market volatility.
  • Such markets can lead to sharp corrections, impacting broader economic stability.

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