Working Paper: NBER ID: w23830
Authors: William N. Goetzmann; Dasol Kim
Abstract: We study crashes using data from 101 global stock markets from 1692 to 2015. Extremely large, annual stock market declines are typically followed by positive returns. This is not true for smaller declines. This pattern does not appear to be driven by institutional frictions, financial crises, macroeconomic shocks, political conflicts, or survivorship issues.
Keywords: Stock Market Crashes; Market Dynamics; Investor Behavior; Negative Bubbles
JEL Codes: G02; G11; G15; G17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic conditions (E66) | rebound phenomena (E32) |
| institutional constraints (D02) | rebound phenomena (E32) |
| investor sentiment and temporary irrational overpricing (G41) | rebound following significant crashes (E32) |
| magnitude of prior market decline (greater than 50%) (G41) | subsequent positive returns (G17) |
| magnitude of prior market decline (smaller declines) (G41) | persistent negative returns (G40) |
| magnitude of prior market decline (greater than 50%) (G41) | rebound effect (Q43) |