Abstract
In 2009 the US faced a recession that was known worldwide. Newspapers, television, and all of the media addressed this problem to a bubble in the housing market. But before blaming the recession on anything, the first question to ask is "What is a bubble?"
Unfortunately, there is not a consolidated or clear definition for "bubbles" in economics (Holzhey, 2013). Nevertheless, there are some descriptive definitions that can help to the general understanding of what a bubble is. Kindleberger (1996) defines a bubble as an upward price movement over an extended range that then implodes. Whereas Stiglitz (1990) mentions that a bubble is when fundamental factors fail to justify a determined price. Similarly, Smith and Smith (2006) stated that a bubble is defined by market prices not being justified by assets' anticipated cash flows.
Even though there is no recognized definition for a "bubble" in the economic jargon according to Holzhey (2013), there are some elements that can be found as essential to other authors that help to understand the meaning of a bubble. From the previous definitions one can identify that a bubble has the following key elements: price, normally referring to overprice; and the lack fundamentals or basis to sustain the high price. Therefore, based on the previous literature a bubble can be defined as a high market price with no fundamentals or unsustainable evidence to support it.
