SPECULATIVE BUBBLESIn this world we are experiencing speculative bubbles in the financial world. People often speculate not knowing its true value which spreads like a contagious acting like a bubble which expands to certain limit and then bursts causing a severe dent in the economy. From the book irrational exuberance a speculative bubble is a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increase. This attracts a larger and larger class of investors, who, despite doubts about the real value of the investment, are drawn to it partly through envy of others' successes and partly through a gambler's excitement.Generally it is caused due to more liquidity in the economy along with low interest rates. People have tend to invest in stock market rather than in bank due to low interest rates. Also investors tend to buy or sell according to behaviour of the market. So when share price is increasing investors put more and more money increasing the price of the share. This tendency to invest is known as herding in behavioural finance.The bubble is known to deflate ultimately which can create large bankruptcies, recession, unemployment, deterioration of asset values, impact to countrys economy etc. Due to domino effect the world is also affected. Subprime crisis is partly responsible for Greek crisis. Economist believe that bubbles cannot be identified in advance, cannot be prevented from forming, that attempts to "prick" the bubble may cause financial crisis and that instead authorities should wait for bubbles to burst of their own accord, dealing with the aftermath via monetary policy and fiscal policy.The speculative bubble can be dated back to 16th century known as tulip mania. Then major one came known as great depression in1929. Japan Crisis, Asian Financial Crisis, Subprime crisis are the recent speculative bubble which lead to financial crisis and has affected the world. Recently there has been plunging of chinas stock market that has left tens of millions of investors in shock. Stock markets in China are falling. A three week plunge has knocked about 30% shares in Chinese shares since mid june. Hundreds of Chinese companies have suspended dealings in their shares to arrest their selling. The Shanghai stock market had surged 150% in past 12 months which can relate to expanding of bubble and its deflating. Investors were attracted by falling borrowing costs as the central bank expansionary monetary policy. Unlike other stock markets where investors are institutional, here most of them are small retail investors. The rise was also fuelled by a switch away from property investment following a restriction by government on excessive lending by banks. Laws liberalising stock market also made it easier to invest and for firms to offer share to the public for first time. The past six months have seen a record number business listed on the Shanghai and Shenzen exchanges.Analysts were already warning that the dramatic rise in Chinas stock market was driven by momentum rather than following the basics. Stocks were largely overvalued at times when the Chinese economy was going through rough patch. As fears grew that rise in many stocks was not upto mark then selling started that bubble beginning to deflate.From time to time we will be experiencing these types of bubbles in stock market across different parts of the world due to behaviour of investors followed by their herd mentality. But we should not be panicked in this situation .Government should employ proper monetary and fiscal policy to cope with this situation and come out of the crisis.