Blue Sky Stock

A blue sky stock is a stock that doesn't have any fundamental basis supporting its high valuation.

This includes pump-and-dump schemes in which the stock’s price inflates due to high trading activity, but that trading activity isn’t tied to true positive expectations of the investment. Once the value inflates high enough, those initiating the scheme would close their positions and likely cause the investment’s collapse.

Ponzi schemes involve blue sky stocks. Investors receive “returns” from the money invested by new investors to create the illusion of profitability. However, there is no basis for the value of these investments.