In the late 1990s, as information technology rapidly advanced and the internet widely developed, u. s. stock markets soared, peaking in early 2001. later that year, these markets began to unwind, and then crash, with many commentators identifying the previous few years as a "stock market bubble." why was this episode considered a bubble? how might it be possible for this episode to still adhere to the efficient market hypothesis?

The correct answer is:

1. Stock market prices were overvalued and rose well above their fundamental values.

2. Investors were acting on the best information available at that time in valuing their stocks.

Explanation:

In the economy, overvaluation situations tend to end with different events, such as decreases in company prices. On the other hand, it is also possible that before a period of continued overvaluation over time, prices are inflated and, after excessive inflation, the so-called economic bubbles appear.

A stock market bubble is a type of economic bubble that takes place in the stock markets when its participants carry the prices of the shares above their value in relation to the stock valuation system.

So, an economic bubble is a phenomenon that occurs in the markets, largely due to speculation; which produces an abnormal and prolonged rise in the price of an asset or product, so that said price is increasingly moving away from the real or intrinsic value of the product.

Bafflingly, bubbles occur even in highly predictable experimental markets; where uncertainty is eliminated and market participants must be able to calculate the intrinsic value of goods simply by examining the expected dividend flow; however, bubbles have been observed repeatedly in experimental markets, even with sophisticated participants such as managers and professional negotiators.

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