Stock Market Crash

What is a Stock market Crash?

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Movie Case Study

The scene from the movie shows the stock market crash. The news reporter reports that shares have plummeted which has triggered the selling of shares. In this blog, Learning Perspectives will explore the meaning of a stock market crash.

What is a Stock market Crash?

Stock market crashes occur instantaneously and without warning. It can also occur due to a long-term bubble as witnessed during the 2008 financial crisis. This crisis makes investors worried about their invested money in the stock market. This worry can lead to many decisions such as panic selling by the investor.

Stock Market Crash Reasons

There are many reasons why the stock market crashes.

Economic Crisis

These crises occur when there is a recession in the country. Recessions and economic downturns trigger stock market crashes. High inflation, unemployment, and declining GDP are some factors that cause investors to panic.

Bubbles and Speculations

Bubbles occur when the asset’s value rises above the intrinsic value. This was seen in 2008 when the housing bubble crashed. The housing or the real estate bubble was created when there was a rising demand and the supply was limited. Demand is fuelled by speculators, demand stagnates and supply increases leading to a sharp price drop. This leads to a bubble burst.

Unprecedented Events

Events such as the Harshad Mehta case, demonetization, and COVID-19 were some events that had an impact on the stock market in the country. Other events can include natural disasters or terrorist attacks. As the country witnessed the outbreak of COVID-19, stock markets fell by 38%. This generally happens due to fear of the unknown in the market. When demonetization occurred both NSE & BSE plummeted by 6.8%.

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