Causes Of Chinese Stock Market Crash Essay

1151 WordsNov 15, 20155 Pages
Chapter 2: Causes of the Chinese stock market crash In the previous chapter, the researcher has covered some basic information about the stock market. Hence, in this chapter, the current situation that the Chinese stock market is suffering from and factors contributing towards this crisis will be analysed. At the end of this chapter, readers will have an idea how a market which was stable for many years could become unsteady within such a short period of time. 2.1. The definition of a stock market crash A stock market crash represents a steep fall in the value of market prices and it is often the factor creating economic depression (Galbraith, 1988). However, the value of the drop that can be considered as a predictor for the crash is debatable. On one hand, Mishkin (1990) argues that the stock market crash only occurs when there was a 20 percent fall in stock price across crucial cross sections of a market. On the other hand, Patel and Sarkar (1998) define a stock market crash as a fall of more than 35 percent of the market’s stock value. No matter how large the percentage of a drop in the price of stocks is on the stock market, both theories agree that the most devastating crashes are usually consequences of an overly inflated market, which is also known as a “bubble” (Mishkin, 1990; Pater & Sarkar, 1998). 2.2. The definition of a bubble in the stock market A bubble in a stock market is an investing phenomenon involving the excessive expectation of investors concerning
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