A sudden and significant decline in the value of a market. A crash is most often associated with an inflated stock market. Causes for a crash may include an economic bubble in which securities, or other investments, are trading at prices far above their intrinsic value, or a highly-leveraged market in which debt is used to finance further investment. Crashes are distinguishable from a bear market by their rapid decline in a number of days, rather than a decline over a longer period of time. A crash can lead to a depression in the overall economy and subsequent bear market.


A crash is both an economic phenomenon and a psychological one. Investors who see a rapid decline in the value of a particular stock may sell off other securities as well, leading to the possibility of a vicious spiral marked by negative crowd behavior. In order to reduce the effect of a crash, many stock markets employ circuit breakers designed to halt trading if declines cross certain thresholds.

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  1. Is cyclical unemployment always due to recessions?

    Cyclical unemployment is always due to a downturn in the business cycle, but it may not be due to a recession. By definition, ... Read Full Answer >>
  2. What is Black Monday?

    Monday October 19,1987, is known as Black Monday. On that day, stockbrokers in New York, London, Hong Kong, Berlin, Tokyo ... Read Full Answer >>
  3. How do investors lose money when the stock market crashes?

    Over the last hundred years, there have been several large stock market crashes that have plagued the American financial ... Read Full Answer >>
  4. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  5. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  6. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>

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