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Market Crash - Research Paper Example

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There are events that compromise the trust, known as market crashes. From the paper "Market Crash" it is clear that crashes apparently occur despite the knowledge that has been gathered about economic and financial cycles and activity, the most recent of which occurred in 2008 and is still unfolding…
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Market Crash
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Download file to see previous pages The subprime mortgage crisis in the U.S. has not only plunged the country’s financial markets into their most volatile trading and deepest plunge since the crash of 1929 but also promises to usher in what others are now calling the Second Great Depression. There is a flurry of research and speculation to understand the causes, extent, and remedies that may be applied to market crashes, the goal to which this paper is devoted.
Stock market crashes are momentous, financial events that are caused by a revelation of a dramatic piece of information that has so far eluded the “efficient” market (Sornette, Didier, p. 3, Princeton University Press). A crash is created by the situation wherein the majority of investors are trying to flee the market at the same time, thereby selling off to lower and lower buyers’ prices and incurring massive losses as a consequence (Investopedia, http://www. investopedia.com/features/crashes/). A crash typically occurs after the acceleration of the market price, called the “bubble,” wherein the rate of price increase is pronouncedly much greater than the asset’s appreciation in true value as to be justified by it (Sornette, Didier, p. 3, Princeton University Press). A bubble has also been defined as a type of investing phenomenon that demonstrates the frailty of some facets of human emotion; it occurs when investors put so much demand on a stock that they drive the price beyond an accurate or rational reflection of its actual worth based on the underlying company (Investopedia, http://www. investopedia.com/features/crashes/).
A crash is an event that is inevitable when the market has progressed into an unstable phase, such that any small disturbance could possibly trigger a collapse; the instantaneous cause of the collapse is not so significant as the condition of instability that had placed the market in its precarious position, to begin with – “the systemic instability”. ...Download file to see next pagesRead More
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