Market Crashes
What It Is
A market crash is a sudden, steep decline in asset prices across a broad market, typically triggered by panic, economic shocks, or systemic failures.
Why It Matters
Crashes can wipe out trillions in wealth, disrupt financial systems, and trigger recessions.
How It Happens
- Negative catalyst sparks fear
- Investors rush to sell
- Liquidity evaporates
- Prices fall rapidly across sectors
- Volatility surges
Key Components
- Panic selling
- Liquidity shortages
- Volatility spikes
- Contagion effects
Example
The 1987 “Black Monday” crash saw the Dow fall over 20% in a single day.
Key Takeaways
- Crashes are fast and emotionally driven.
- Liquidity and leverage amplify declines.
- Recovery depends on policy response and market confidence.