What is 'Panic Buying'

Panic buying is a type of behavior marked by a rapid increase in purchase volume, typically causing the price of a good or security to increase. From a macro perspective, panic buying reduces supply and creates higher demand.

BREAKING DOWN 'Panic Buying'

Panic buying may result from a number of different events. Generally panic buying occurs from increased demand which causes an increase in price. Adversely, panic selling has the opposite affect resulting in increased supply and a lower price. Conceptually panic buying and selling on a large scale can have dramatic affects leading to market shifts in various scenarios.

Investment trading and a country’s economic framework provide two settings for broad market affects from panic buying. Both can be important landscapes for following supply, demand and price inflation. Investment trading will typically see more direct and immediate affects from panic buying. A country’s economic framework will also be influenced by panic buying however it would have less of an immediate impact since it causes price fluctuation in goods which are depleted over a longer amount of time from supply backed by inventory.

Panic Buying and Investing

Panic buying in the financial markets is typically evidenced by a spike in volume with the majority of investors seeking buy positions. Panic buying for a security may occur when a security reaches a support zone and shows strong signals for a rebound. This can create a high interest in the security since it is selling at a low price and actively followed by a broad audience. Panic buying can also occur after unanticipated news about a company has been released that will positively affect its value and trading price.

Market trading mechanisms are a central component influencing the volatility of a security’s daily price. Since security’s trade continuously on the secondary market they can easily be immediately affected when panic buying occurs. Market makers match buyers and sellers in the trading market. When market makers have a high demand for a security with a lower supply, it can immediately increase the ask price, pushing the price steadily higher. Regardless of whether panic buying is driven by technical or fundamental factors, the market mechanisms facilitating trades on the open market will generally always see prices move higher when panic buying occurs.

Panic Buying and the Economy

Economists watch prices and price inflation across a wide range of goods and services within an economy. Price inflation is typically one of a few important economic indicators that can provide a reading on economic activity. Generally, prices inflate during growing economies where consumers are actively spending. However, the availability of goods and services can also affect price inflation.

Panic buying in an economy can occur for various reasons, each of which can have different impacts on an economy and its monetary policy support. High volume buying may be driven by demand for a new product that consumers are overwhelmingly interested in. This type of high demand can be good for the economy while also leading to price inflation. Adversely, in some economic situations, panic buying may be driven by an extremely low supply which can drive up the price and also cause a shift towards new alternatives. Some panic buying situations may also only be for a short term such as a high demand for goods related to weather-related conditions which can have their own economic implications.

RELATED TERMS
  1. Exhausted Selling Model

    A pricing model used to estimate when the price floor of a security ...
  2. Behaviorist

    1. One who accepts or assumes the theory of behaviorism (behavioral ...
  3. Behavioral Analytics

    Behavioral analytics is a sector of data analytics geared toward ...
  4. Market Disruption

    Market disruption is a circumstance where the regular functions ...
  5. Stock Market Crash

    A stock market crash is a rapid and often unanticipated drop ...
  6. Rational Behavior

    A decision-making process that is based on making choices that ...
Related Articles
  1. Investing

    How to Profit From Panic Selling

    When everyone rushes to dump their stocks in what's known as panic selling, you may find yourself with a great bottom-fishing buying opportunity.
  2. Financial Advisor

    Why Investors Can Be Their Own Worst Enemy

    Here are a few examples of investor behavior that contributes to portfolio underperformance.
  3. Investing

    Don't Let Emotions Derail Investment Decisions

    Understanding behavioral finance can help you make better investing decisions.
  4. Investing

    Vanguard Says Investors Didn't Panic When Markets Tanked

    Vanguard said that investors didn't panic earlier in the month when stocks plummeted.
  5. Trading

    Leading Indicators Of Behavioral Finance

    Discover how put-call ratios and moving averages can be used to analyze investor behavior.
  6. Investing

    The Behavior That Helps You Increase Your Returns

    Has your financial advisor talked to you about the factor that makes or breaks financial success?
  7. Investing

    One Thing to Never Do When the Stock Market Goes Down

    We could all use a little reminder.
  8. Financial Advisor

    An Advisor's Role as Behavioral Coach

    Investment management is just one part of a financial advisor's role.
RELATED FAQS
  1. What is the difference between a capital good and a consumer good?

    Learn to differentiate between capital goods and consumer goods, determined by how those goods are used, and see why capital ... Read Answer >>
  2. What Does 'Buy on Cannons, Sell on Trumpets' Mean?

    The saying suggests that the start of a war is a good time to invest in the stock market. Read Answer >>
  3. Which economic factors most affect the demand for consumer goods?

    Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
  4. What are some limitations of the consumer price index (CPI)?

    Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine ... Read Answer >>
  5. What's the difference between primary and secondary capital markets?

    In the primary market, investors buy securities directly from the company issuing them, while in the secondary market, investors ... Read Answer >>
Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center