Web-based dictionaries provide the following definitions of a stock market crash: that it is a precipitous and rapid decline in the prices of shares traded on a stock exchange, caused by panic selling. Stock market crashes are triggered typically by loss of investor confidence after an unexpected event, and are exacerbated by fear.
They are usually preceded by a period of prolonged and high inflation, economic and/or political uncertainty, or hysteric speculative activity. They bring normal economic activity to a halt, wipe out the savings of millions of investors, and bring widespread misery in their wake, specially for the weaker and vulnerable sections of the society.(Business Dictionary).
Another source says a stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. crashes are driven by panic as much as by underlying economic factors.
They often follow speculative stock market bubbles. Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell.
Generally speaking, crashes usually occur under the following conditions: a prolonged period of rising stock prices and excessive economic optimism, a market where the price to earning ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants. There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days.
Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. While crashes are often associated with bear markets, they do not necessarily go hand in hand.
The crash of 1987, for example, did not lead to a bear market. Likewise, the Japanese bear market of the 1990s occurred over several years without any notable crashes (Investopedia).
