What is TRUE about Bubbles and Crashes?

I. Excessive trading and overconfidence contribute to a bubble.
II. Self-attribution bias is often evident in a quickly rising market.
III. When a bubble bursts, markets may underreact due to anchoring.

Correct Answer: I, II and III

I. Excessive trading and overconfidence are connected to confirmation bias and self-attribution bias, contributing to a bubble.

II. Self-attribution bias is present when investors take personal credit for the success of their trades.

III. This occurs when investors fail to quickly update their beliefs.