I first started blogging on ideas relating to economics, finance, investments and housing following an invitation from Business Spectator Please note that I may have an economic interest in any of the items discussed here. The market was in an upward trend in the 1920’s and investments in shares were on the increase. This phase can be recognized by the saturation of the stock market and the increasing competition. As with many market reversals, the causes are numerous, intertwined, and controversial.
In 1963, Benoît Mandelbrot proposed that instead of following a strict random walk, stock price variations executed a Lévy flight.25 A Lévy flight is a random walk which is occasionally disrupted by large movements. The market continued to decline in value, leaving investors who had purchased stock on credit financially destroyed. This did little more than temporarily stem the tide, however, because from Black Thursday to October 29, 1929 ( Black Tuesday ), stocks still lost more than $26 billion of value and more than 30 million shares traded. When word spread that banks’ assets contained huge uncollectable loans and almost worthless stock certificates, depositors rushed to withdraw their savings.
The stock market crash of 1929 is often associated with stories of investors and traders jumping out of windows after losing everything. As long as the stock market continued to increase in value, these investors did stand to make a profit. The market continued to soar during 1928 and much of 1929, with these twenty-five leading industrial stocks reaching the 452 point mark in early September 1929, almost doubling the stocks’ selling price in less than two years. The average trading volume on NYSE in 2007 was about 3.1 billion shares per day.
The 500 largest U.S. companies as measured by their market capitalization are included in this index, which is compiled by the credit rating agency Standard & Poor’s. The Dow Jones even managed to claw its way back up partially between November 1929 and early 1930s. From there it spread throughout the western economy, bringing almost every market to its knees. It occurred on Black Tuesday, October 29, the day the stock market experienced the greatest crash in its history. Throughout a bear market, the only thing that affects a company’s falling share price is the downturn in economic and market conditions. If you can generate increasing and steady profits, investors generally reward you with higher stock prices.
When enough sellers offload a stock because of their own fear of loss based on something they’ve heard, it will cause the price of that stock to drop. Based upon the idea that a cooling off period would help dissipate investor panic, these mandatory market shutdowns are triggered whenever a large pre-defined market decline occurs during the trading day. Bear markets are periods of declining stock market prices that are measured in months or years. The mechanism works by means of central banks buying bonds in the stock market or directly from banks.