Stock Market Crash

The stock market is an essential aspect in the economic development of any region. It entails the trade of shares which are mainly securities that are listed in a given stock exchange as well as those that are traded privately. A stock market crash occurs when the market experiences a sudden decrease of prices in a significantly large segment of the stock market. The forces of supply and demand of the shares within a given stock market determine the stability of not only the market but also the economy of the region in question.

Fraudulent behavior of some stakeholders can cause a stock market crash. This can take the form of insider selling or illegal manipulation of the price of shares. According to Harold, insider selling entails the sale of shares at a very scary rate besides creating a debt. This calls for a sudden reduction of the price of shares.

Overpricing of shares renders the stock market susceptible to a crash. The ultimate effect of this act is an increase in the sale of shares at an alarming rate. This calls for a sudden reduction of the price of shares within the market.

The inability of the specialists within the stock market to deal with a high rate of flow of sell orders can cause a stock market crash. For instance, during the 1987 crash, the New York Stock Exchange specialists were unable to find sufficient buyers to purchase the shares available for sale at a given price. This led to the termination of trading in many listed stocks which propagated the crash.

A stock market crash has a negative impact on the economy. It can lead to unemployment of a large number of people. For instance, during the 1987 crash in the U.S., more than 15,000 people lost their jobs. In extreme cases, it could lead to the collapse of major institutions that form the core of a given sector in the economy.

In conclusion, a stock market crash affects not only the stability of the stock exchange market in a given region but also its economy. It can be caused by insider selling, overpricing of shares and lack of effectiveness of the trading mechanisms of financial markets among other reasons. It can cause both monetary loss and unemployment.