What is a stock market crash?
Defined: A stock market crash / share market crash is a rapid sell-off or falls in asset prices, like shares/stocks, bonds or property.
Here are some of the most prominent share market crashes:
- Global Financial Crisis (GFC), 2007/2008
- Dot-com boom and bust, 2000
- 97 Asian financial crisis
- Black Monday, 1987
- 1973-74 stock market crash
- 1929 crash
- Tulip mania crash, 1637
What causes share market crashes?
Some investors believe share markets move in cycles depending on Fibonacci sequences, the US presidential cycle, wave theory and other mathematical and technical formula. However, some investors argue that market crashes cannot be predicted but can be expected to occur every 7 to 10 years.
Market Crash versus Market Correction
It is generally accepted that a market correction is a drop of less than 20%, while a crash is something more than 20%.
Volatility is often associated with the random day-to-day ups and downs in share prices. It is the risk that cannot be reduced by diversification. You can watch our video explaining diversification here.
Test Your Knowledge
Shares of Accident Ltd fall 2% tomorrow. Most likely, the movement is an example of…
Volatility, also called market risk, is the risk that cannot be reduced with diversification and is often associated with the day-to-day 'ups and downs' of share prices. While a 2% movement could be the start of a market correction or crash, technically, a 2% fall would not be enough to be a market correction or crash.
Typically, how much must a market fall before it is considered a crash?
Although there are no hard and fast rules, many investors will define a market crash as a fall of 20% or more.
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