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Panic selling is a large-scale selling of an
investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...
that causes a sharp decline in prices. Specifically, an investor wants to sell an investment with little regard to the price obtained. The sale is problematic because the investor is reacting to
emotion Emotions are mental states brought on by neurophysiological changes, variously associated with thoughts, feelings, behavioral responses, and a degree of pleasure or displeasure. There is currently no scientific consensus on a definitio ...
and
fear Fear is an intensely unpleasant emotion in response to perceiving or recognizing a danger or threat. Fear causes physiological changes that may produce behavioral reactions such as mounting an aggressive response or fleeing the threat. Fear ...
, rather than evaluating the fundamentals. Most major
stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for t ...
s use
trading curbs A trading curb (typically known as a circuit breaker in Wall Street parlance) is a financial regulatory instrument that is in place to prevent stock market crashes from occurring, and is implemented by the relevant stock exchange organization. Si ...
to throttle panic selling, provide a cooling period for people to digest information, and restore some degree of normality to the market.


Causes

The panic is typically the "fear that the market for a particular industry, or in general, will decline, causing additional losses." Panic selling causes the market to be flooded with
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
,
properties Property is the ownership of land, resources, improvements or other tangible objects, or intellectual property. Property may also refer to: Mathematics * Property (mathematics) Philosophy and science * Property (philosophy), in philosophy an ...
or
commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a co ...
that are being sold at lower prices, which further stumbles prices and induces even more selling. Here are common causes for the panic: * High speculation in market (e.g. Dubai housing crash in 2009) * Economic instability (e.g. financial crisis in 2008) * Political issues


Examples


Stock market crash of 1929

After World War I, the United States experienced significant economic growth that was fueled by new technologies and improved production processes. Industrial production output increased 25% between the years 1927 and 1929. In late October 1929, the decline began in the market and led to panic selling as more investors were unwilling to risk additional losses. The market sharply declined and was followed by the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
.


Financial crisis of 2008

The mortgage crisis led to public concern over the ability of financial institutions to cover their exposures in the
subprime loan In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subp ...
market and
credit default swaps A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. That is, the seller of the CDS insures the buyer against some ...
. As more financial institutions such as
Lehman Brothers Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, ...
and
AIG American International Group, Inc. (AIG) is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. , AIG companies employed 49,600 people.https://www.aig.com/content/dam/aig/amer ...
reported their failures, the market instability deepened and more investors withdrew their investments. In October, the stock market crash occurred.
Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA is one of the oldest and most commonly followed equity inde ...
fell 1,874 points or 18.1% during Black Week which began on October 6. In that same month,
S&P 500 The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of ...
and the
Nasdaq Composite The Nasdaq Composite ( ticker symbol ^IXIC) is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. Along with the Dow Jones Industrial Average and S&P 500, it is one of the three most-followed stock market ind ...
reached their lowest level since 2003.


Dubai housing crash of 2009

Dubai Dubai (, ; ar, wikt:دبي, دبي, translit=Dubayy, , ) is the List of cities in the United Arab Emirates#Major cities, most populous city in the United Arab Emirates (UAE) and the capital of the Emirate of Dubai, the most populated of the 7 ...
had a significant financial crisis in which its debt accumulated to $80 billion. The state-owned holding company,
Dubai World Dubai World ( ar, دبي العالمية) is an investment company that manages and supervises a portfolio of businesses and projects for the Government of Dubai across a wide range of industry segments and projects that promote Dubai as a hub ...
, had liabilities of $60 billion. Its real estate subsidy was at risk to default on repayment of bonds, yet the Dubai government was unsuccessful to make a rescue package for the company. The debt problem of Dubai World triggered mass
speculation In finance, speculation is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline in value.) Many ...
in the property market. In the first quarter of 2009, house prices in Dubai fell 41%.


Gold price plunge

Many people invest in
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
primarily as a
hedge A hedge or hedgerow is a line of closely spaced shrubs and sometimes trees, planted and trained to form a barrier or to mark the boundary of an area, such as between neighbouring properties. Hedges that are used to separate a road from adjoi ...
against
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
in periods of economic uncertainty. During the second quarter of 2011, the gold price hiked 22.69% and reached its highest price, at $1907. On September 23, 2011, the gold price plunged $101.90, or 5.9%, in regular trading, which was the first $100 daily price drop since January 22, 1980. The gold price had reached its top, but the global economy was declining. Investors had a growing concern in the global economic decline, and fear were raised of potential price fall. Panic selling occurred in the gold market and caused the price to plunge.


See also

*
Panic buying Panic buying (alternatively hyphenated as panic-buying; also known as panic purchasing) occurs when consumers buy unusually large amounts of a product in anticipation of, or after, a disaster or perceived disaster, or in anticipation of a large ...
*
Stock market crash A stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic selling and underlying economic factors. They often foll ...
*
Economic bubble An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be c ...
*
Mass hysteria Mass psychogenic illness (MPI), also called mass sociogenic illness, mass psychogenic disorder, epidemic hysteria, or mass hysteria, involves the spread of illness symptoms through a population where there is no infectious agent responsible for c ...


References

{{Reflist Financial problems Investment