Stock Market Crash History
The stock market has been an engine of capitalism and source of great profits for many years, but the journey has not been without some significant bumps in the road. Stock market crashes are dramatic, destructive events that have ruined even the wealthiest investors.
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Why Stock Market Crashes Occur
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There have been many stock market crashes and panics throughout history. Most of the time, these crashes occur after bubbles push prices to unsustainable highs, leading to irresponsible speculation and significant margin debt, all fueling the flames once it comes crumbling down.
Significance
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Stock market crashes are the most dramatic events in not only the market itself but the entire economy. The 1929 stock market crash wiped out billions of dollars, forced the bankruptcy of thousands of companies and banks, and played a big roll in starting the Great Depression.
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Features
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A stock market crash features a rapid price decline across all indices, usually of greater than 5 percent at the outset, and intense panic selling. The overall environment is extremely pessimistic, with investors seemingly convinced the world is ending.
Types
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There have been two basic types of stock market crashes: short and rapidly corrected, and long and devastating. The 1929 crash was long and devastating, while the 1987 crash, though intense, lasted only a few days, with prices recovering their highs in a matter of months.
Time Frame
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The time frame of stock market crashes varies from a few days to multiple years. The crash of October 1987 lasted only a few days, while the 1929 crashes saw prices not recovering their highs until two decades later.
Theories
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Despite the large losses created by stock market crashes, some economists and market commentators believe that occasional crashes are necessary to cleanse the economy of the imprudent businesses and foolish risk takers who crowd into the market during the bubble.
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