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:[1] 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 bear market of the 1990s occurred over several years without any notable crashes. On September 16, 2008, failures of massive financial institutions in the United States, due primarily to exposure of securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly devolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of stocks and commodities worldwide. The failure of banks in Iceland resulted in a devaluation of the Icelandic króna and threatened the government with bankruptcy. Iceland was able to secure an emergency loan from the International Monetary Fund in November.[14] In the United States, 15 banks failed in 2008, while several others were rescued through government intervention or acquisitions by other banks.[15] On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the "brink of systemic meltdown."[16] The economic crisis caused countries to close their markets temporarily. On October 8, the Indonesian stock market halted trading, after a 10% drop in one day. The Times of London reported that the meltdown was being called the Crash of 2008 and older traders were comparing it with Black Monday in 1987. The fall that week of 21 percent was not as large a drop as the 28.3 percent fall 21 years earlier, but some traders were saying it was worse. “At least then it was a short, sharp, shock on one day. This has been relentless all week.”[17] Business Week also referred to the crisis as a "stock market crash" or the "Panic of 2008."[18] Beginning October 6 and lasting all week the Dow Jones Industrial Average closed lower for all five sessions. Volume levels were also record breaking. The Dow Jones industrial average fell over 1,874 points, or 18%, in its worst weekly decline ever on both a point and percentage basis. The S&P; 500 fell more than 20%.[19] The week also set 3 top ten NYSE Group Volume Records with October 8 at #5, October 9 at #10, and October 10 at #1.[20] It has been noted that recent daily stock market drops are overall nowhere near the severity experienced during the last stock market crash in 1987.[21] Others have suggested that the media is manipulating and over-inflating stock market drops and calling them "crashes" in order to create the perception of a great depression.[22][23] After having been suspended for three successive trading days, i.e., October 9, October 10, and October 13, the Icelandic stock market reopened on 14 October, with the main index, the OMX Iceland 15, closing at 678.4, which corresponds to a plunge of about 77% compared with the closure at 3,004.6 on October 8. This reflects the fact that the value of the three big banks, which form 73.2 percent of the value of the OMX Iceland 15, had been set to zero. http://en.wikipedia.org/wiki/Stock_market_crash

• published: 23 Mar 2015
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