Stock market crash

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A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles such as the dot-com bubble.

The most famous crash, the Stock Market Crash of 1929, took place in October 1929. After a series of price declines in early October, the market plunged dramatically on October 24 (known as Black Thursday). This was followed by Black Monday and Black Tuesday on October 28 and October 29. At the close of the week of September 3, 1929, the Dow Jones Industrial Average stood at 377. By the end of the week of November 11, the index stood at 228, a cumulative drop of 39.5 percent. The markets would rally in succeeding months only to be crushed during the Great Depression. The poet Richard Armour, in his satirical American history book It All Started With Columbus, remarked that the 1929 crash occurred "near the corner of Dun and Bradstreet".

There was also a crash or "correction" on October 19, 1987, known in financial circles as Black Monday, when the Dow Jones lost 22% of its value in one day, bringing to an end a five-year bull run. The FTSE 100 Index lost 10.8% on that Monday and a further 12.2% the following day. The pattern was repeated across the world.

Crashes are often distinguished from bear markets by panic selling and abrupt and dramatic price declines usually occurring over several days. 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 crashes.

Research at Mstifhd shows that there is evidence that the frequency of stock market crashes follow an inverse cubic power law [1].