An Overview Of Stock Market Crashes Throughout History



Stock market crashes, which are defined as an abrupt, steep decline in stock prices, spanning a substantial cross-section of a stock market, have gotten a lot of attention over the years due to the considerable loss of paper-wealth associated with these events.Stock Market Crashes

 

A stock market crash often follows speculative stock market bubbles, and they are fueled by panic in addition to underlying economic conditions. It is crucial to study the history of stock market crashes, in order to recognize the signs of an impending crash, as well as the difference between a bear market, and a market crash.

By understanding the history of market crashes, and recognizing the warning signs of an impending crash, you can better position your self to ride out a market crash and mitigate your losses in the event of a sudden drop in stock prices.

What Are Stock Market Crashes?

Stock market crashes are a social phenomena combining psychology and crowd behavior. This creates a positive feedback loop in which the selling activity of some market participants influences the selling activity of other market participants.

So, what causes a stock market crash? In general, a stock market crash normally occurs when there has been a sustained period of rising stock prices as well as extravagant economic optimism, combined with P/E ratios exceeding long-term averages as well as extensive use of leverage and margin debt by participants in the market.

While there is no numerically specified definition of a market crash, the term normally lends itself to a dramatic double-digit percentage loss in a market index over a multi-day period. Dramatic, abrupt declines in stock prices combined with panic selling distinguishes a crash from a bear market.

A bear market is characterized as a period of declining stock prices that is measured in months or years. Bear markets and crashes are often associated with each other, although they do not necessarily always occur together.

For example, a bear market did not result from the stock market crash in 1987, commonly referred to as Black Monday. In the Wall Street crash of 1987, the Dow Jones Industrial Average fell 22.61% to 1738.74. On the other hand, the bear market that occurred in Japan in the 1990s spanned several years absent of any significant Japanese stock market crash.

Historical Stock Market Crashes

Throughout history, stock market crashes have often had far reaching effects, with the most famous being the stock market crash in 1929, which became the catalyst for the Great Depression. The 1929 Wall street crash saw a 23% decline in the Dow Jones Industrial Average.

The subsequent 1930 stock market crash further compounded the issue, ultimately leading to a staggering 89% loss in value for the Dow. The 1930 Wall Street crash ultimately led to the worst economic crisis in modern history.

The 2008 stock market crash, and the stock market crash in 2010 (often referred to as the “flash crash”), were other notable market crashes which saw a wave of panic selling resulting in the massive loss of paper wealth.

It is crucial for investors to understand the history of stock market crashes, what defines a crash, and the circumstances leading up to them. Only by answering the question “how does a stock market crash?” can you better position yourself to weather the fallout, and even profit from the fear and panic in the market.

For Further Reading On Stock Market Crashes:

The History Of Stock Market Crashes, Stock Market Crash, Stock Market Crash In 1987, Wall Street Crash In 1987, Stock Market Crash In 2010, Stock Market Crash In 1929, 1929 Wall Street Crash, Japanese Stock Market Crash, 2008 Stock Market Crash, 1930 Stock Market Crash, 1930 Wall Street Crash, How Does A Stock Market Crash, What Causes A Stock Market Crash




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