What is a 'financial bubble'?

A financial bubble refers to a situation in which the price of an asset significantly exceeds its intrinsic value, often driven by exuberant market behavior and speculation. When investors are overly optimistic or driven by trends and hype, they may bid up prices far beyond what the asset is fundamentally worth, leading to inflated valuations. This discrepancy creates a bubble, which can eventually burst when market conditions change or when investor sentiment shifts, resulting in a sharp decline in prices.

The notion of intrinsic value is central here, as it reflects the true worth of an asset based on fundamental analysis, such as earnings potential, growth prospects, and market conditions. During a financial bubble, the asset's market price reflects rampant speculation rather than these underlying factors, making option C the definition that accurately captures this phenomenon.