Over the last 18 months we’ve experienced a world financial stock market crash controlled completely by the bears. The years preceding the stock market crash of 1929 were filled with irrational exuberance Stock prices had risen across the board, even for companies that posted little profit , and investors were very optimistic that the general upward trend of the market and the economy would continue for some time.
By Friday, the situation was so out of control that the decision was made to close down the stock market. Eventually dreams and reality have to be reconciled, and that means some kind of crash. Though the market ended on a positive note on Thursday, there was still some panic among the people. The value of the shares is strengthened further by stock splits and as icing on the cake this value of the shares was enlarged again in the Dow Jones Index, because behind the scenes the formula of the Dow Jones was adjusted due to stock splits.
In 1995, Rosario Mantegna and Gene Stanley analyzed a million records of the S&P 500 market index, calculating the returns over a five year period.26 Their conclusion was that stock market returns are more volatile than a Gaussian distribution but less volatile than a Lévy flight.
The usual economic factors which result in crashes include a long-standing time period of rising stock prices, a market with a higher-than-average price-to-earnings ratio and the wide use of margin debt and leverage. The Great Crash and the Great Depression clearly exhibited the frailties and dangers of a totally laissez faire economy. After this dismal week, prices continued to fall, wiping out an estimated $30 billion in stock values by mid-November 1929.
Stock market crashes are usually followed by bear markets – but this is not a rule without exceptions. So while the novice investor dumps their stock and leaves the market once conditions become undecided or volatile, the savvy investor rubs their hands together in glee. An increase in share value of 1 dollar of the set of shares in 2015 results is 6.6 times more points than in 1985. Millions of Americans began to purchase stock, causing the market to dramatically increase in value.