What Is A Stock Market Crash And What Happens When It Does?

Written by Mallory Megan

Saturday, 10 July 2010 07:53

A stock market crash can be summed up as a situation where share prices of stock listed on the stock exchanges plummet. Despite the fact that there are many economic variables that will cause a stock market crash, two main reasons for stock market crashes are also the investing public's loss of confidence in the economy and mass panic. by MalloryMegan A stock market crash can be summed up as a situation where share prices of stock listed on the stock exchanges plummet. Despite the fact that there are many economic variables that will cause a stock market crash, two main reasons for stock market crashes are also the investing public's loss of confidence in the economy and mass panic. Many times, the effects of stock market crashes can be awful for a country's economy. There have been infamous stock market crashes that resulted in the loss of billions of dollars, and as more and more people become involved in the stock market, crashes have touched more lives recently. One of the most infamous stock market crashes began on October 24, 1929 and would be come to be known as Black Thursday. The Dow Jones Industrial lost fifty percent during this stock market crash, setting off the start of the Great Depression. Another famous crash occurred on October 19, 1987, which also known as Black Monday. The crash started in Hong Kong but rapidly caught fire around the world. By the time October was over, stock markets in Hong Kong had fallen 45.5%, the United States had fallen 22.68%, and Australia, Spain, the United Kingdom and Canada suffered intensely in addition. In stock market history, this marked the biggest one day percentage decline - the Dow Jones fell by 22.6% in one day. No one could seem to explain the crash in 1987. The main events and news that were occurring at the time could not seem to predict the disaster and any obvious reasons for the collapse couldn't be identified. This crash brought many questions about the theories and assumptions of modern economics to the table. After the crash, computer systems were upgraded in the stock exchanges to handle larger trading volumes more efficiently. The New York Stock Exchange also introduced the concept of a circuit breaker, which halts trading if the Dow declines a prescribed number of points for a prescribed amount of time. About the Author: Mallory Megan works for Rapid Recovery Solution and writes articles on commercial collection agencies.