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Why Does a Bubble Inflate Faster Right before It Bursts?

Recently real estate prices have risen rapidly in several major cities in China. There have been big debates on whether this represents a bubble. Financial Times Chinese published an article suggesting that by observing the past stock and housing market bubbles in the U.S. and Japan, one can see a phenomenon; the closer the bubble is to bursting, the faster it expands.

The article gave three reasons:

First, the buy and the short are supposed to balance the market. At the early stage of the bubble, they are in balance. As the bubble keeps developing, more people want to buy instead of sell. The short can no longer restrict the bubble.

Second, as the bubble grows, some investors start to worry about risk. To attract those rational investors, the market starts to offer higher short-term returns. If these returns are high enough, it will attract more investors.

Third, at the late bubble stage, a uniform consensus forms that the bubble will last forever. Almost all investors jump in to buy the bubbled assets. However, if all of them have bought the assets, to whom will they sell to make profit?

Source: Financial Times Chinese, March 9, 2016