Topic 8: STOCK MARKET CRASH: mrtq13

"REASONS FOR STOCK MARKET CRASH
There are many reasons that have been responsible for the crash of stock markets across the world. First reason is ?huge frauds?. There are many types of frauds that are associated with the stock market. Normally, the stock market does not crash on incidence of minor frauds. But if huge frauds are unearthed, the stock market normally responds to this by crashing down. It is to be noted here that stock market crashes because of heaving selling. When all the stockholders, whether individual or institutional, start selling their holdings, the stock market index comes down heavily and it is said that the stock market has crashed. In the past, many stock market indexes had crashed due to these scams. One of very famous scams is the Harshad Mehta scam that is associated with the Bombay Stock Exchange, when the Bombay Stock Exchange Sensex, also called BSE Sensex, came down heavily and the stock market crashed within few minutes.
The other reason that can be citied for the stock market crash is toppling of government. If due to any reason, the government of the nation is toppled, the stock market is one of the most immediate markets that react to the event. It comes down heavily and in most of the cases, it gets crashed. There are many reasons for the toppling over of government and stock market responds to these reasons quite sharply. One of the reasons that are responsible for the stock market crash is the announcement of budget for the next financial year. Normally, the budget is announced by the central government for the succeeding year and along with budget, the economic policies of government regarding the development of industry etc are also announced. If it is felt that the policies announced in the budget are not conducive to industrial development, stock market reacts quite heavily to this and gets crashed sometimes. As we all know, there are many foreign companies that make investments in the stocks of companies listed at the stock exchange. When these foreign institutional investors go for heavy shelling, the stock market crashes. The foreign institutional investors, also called as FII in the stock market, go for heaving selling due to number of reasons. It can be political instability in the country where the investments have been made or finding of green pastures elsewhere. Whatever is the reason, if FII go for heavy selling, it is seen that the stock market index closes 3-5% lower than the previous day closing and it is said that the stock market has crashed.
Another reason when the stock market reacts shapely is the death of any prominent political leader. The decline, however, is temporary in most of the cases.
Apart from the above, there are some more reasons that are responsible for the declining of stock market. These are crashing down of contemporary stock markets, big corporate and business houses announcing their loosing annual or monthly numbers etc. Thus, there are many reasons that are responsible for the crashing down of stock market. Whatever is the reason, it can be said that as the stock market crashes, the prices of stocks of listed companied come down sharply. Let us now discuss some of the aspects related to stock market crash.
RELATED ASPECTS OF STOCK MARKET CRASH
There are many aspects related to stock market crash that need to be understood. First of all, as the prices of stocks come down during stock market crash, it provides good opportunities for various investors to make investment in the coming days. However, a person has to be vigilant because it has been seen in many circumstances that the once a stock market crashes, it take many trading sessions to follow an up-trend. For a small stock market crash, the word ?correction? is often used. But in such cases, the stock market comes down due sharp rise that has been observed in the past few days and there are no fundamental or technical reasons for that. Sometimes, the stock market crash is so sharp and deep that the regulatory authorities may take decision to stop trading so that no further drop is observed. This cessation in trading can be few minutes, hours etc and the decision is taken only after conforming the sentiments in the stock market. Before a person goes for buying of stocks after the stock market crash, he must confirm that the stock market is really showing signs of recovery. This is because if the rise in the stock index is temporary, the stock market index can close at even lower levels as compared to the previous day close. Thus, there are many aspects that need to be understood regarding stock market crash.
THUS, STOCK MARKET CAN CRASH FOR MANY REASONS
After reading the above article, the stock market can crash due to many reasons as cited above. Whatever is the reason, it is certain that the price of stock listed at the stock exchange would definitely come down. There are also some aspects related to stock market crash that need to be understood completely before a person goes for making investments."