A global market crash is the sudden dramatic collapse of a major stock market that results in a loss of paper wealth and significant economic stress. Crashes typically follow a combination of panic selling and underlying economic factors. They often occur in tandem with other events, such as government actions or natural disasters.
In the past, the onset of a market crash was often followed by a recession that lasted for months or years. During the Great Recession of 2008-2009, it took almost four years for the Dow to recover from its low point following the market crash of September 2008.
Market crashes can feel like an existential threat, especially for those with substantial investments or close to retirement. For them, money represents more than currency; it is a symbol of self-worth, financial stability, and the ability to maintain their lifestyles. As the turbulence of markets continues, many are struggling to cope with the uncertainty that has driven stocks down and their confidence in the future.
Fortunately, research in Frontiers in Psychology (Qin et al., 2019) offers insight into how individuals can cope with the fear and stress associated with market turbulence. The study analyzed a Chinese stock market boom and bust during 2014-2015, and found that people exposed to the turmoil were more anxious than those not involved, even though the Shanghai Composite Index was mostly rising. This challenges the assumption that only falling markets cause psychological distress.
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