stock market crash causes


There are several theories to stock market crash causes.

The most reputable of the stock market crashes have occurred in 1929 and 1987.

The causes of these crashes have been reputed to different causes.

As for the first, the 1929 crash followed a time of prosperity in the U.S. With the economy seemingly strong and stock markets forever rising, many invested everything they had in the markets.

At the same time, buying on borrowed money, on margin, was popular.

When the economy slowed down in 1929, the rising stock prices bubble burst and panic selling began, which resulted in a major market crash.

Stock Market Crash Causes - 1987 Crash

The 1987 stock market crash has been contributed to several things, including program trading and poor portfolio choices of portfolio insurance professionals.

As computers were heavily used in trading by 1987, many claimed that the predetermined sell signals were hit simultaneously for numerous program trading systems at the same time, which at least aided in the formulation of the crash of 1987.

Portfolio insurance, meanwhile, is a form of investment, a guarding of other stock investments against losses.

What makes this risky is that portfolio insurance professionals were claimed to rely on their intuition instead of the reliable information for investment decisions.

The strategy is to sell stocks at a high price when the market is declining. But when the feel is that the market will increase again, these investors buy back their stocks at a lower value and balance the profit against the losses within their portfolio.

When done in massive amounts by major portfolio holders, this becomes a downward spiral and this spiral has been credited as one of the 1987 stock market crash causes.


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