A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.
Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Generally speaking, crashes usually occur under the following conditions: a prolonged period of rising stock prices and excessive economic optimism, a market where P/E ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants.
There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. While crashes are often associated with bear markets, they do not necessarily go hand in hand. The crash of 1987, for example, did not lead to a bear market. Likewise, the Japanese Nikkei bear market of the 1990s occurred over several years without any notable crashes.
Read more about Stock Market Crash: Wall Street Crash of 1929, Trading Curbs, Mathematical Theory and Stock Market Crashes
Famous quotes containing the words stock, market and/or crash:
“Death and life were not
Till man made up the whole,
Made lock, stock and barrel
Out of his bitter soul,”
—William Butler Yeats (1865–1939)
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“Russian forests crash down under the axe, billions of trees are dying, the habitations of animals and birds are layed waste, rivers grow shallow and dry up, marvelous landscapes are disappearing forever.... Man is endowed with creativity in order to multiply that which has been given him; he has not created, but destroyed. There are fewer and fewer forests, rivers are drying up, wildlife has become extinct, the climate is ruined, and the earth is becoming ever poorer and uglier.”
—Anton Pavlovich Chekhov (1860–1904)