The risks associated with overvaluation are significant:
Market Correction: Eventually, the market may correct itself, leading to a sharp decline in stock prices. Investor Losses: Investors who buy overvalued stocks at their peak may suffer substantial losses when prices fall. Reduced Confidence: Overvaluation can erode investor confidence in the market, leading to reduced investment and economic instability. Resource Misallocation: Capital may be misallocated to overvalued companies instead of being invested in more productive areas.