Why Stock Markets Crash

| June 7, 2016 | 0 Comments

No doubt you have asked yourself why stock markets crash. Having experienced the global credit crush not so long ago, you would naturally want to find out why there would be a crisis in stock markets. Of course you know a few people who have excelled in these markets. Still, they crash. Didier Sornette attempts to provide answers to this most disturbing question. The author addresses the causes of stock market problems using mathematical models which, unlike what you are expecting, are not too hard to grasp.

The author links the common herding effect to the crash of stock markets. When stock prices are low, many financial traders buy heavily, expecting to sell when prices go up. This is a dangerous phenomenon that may lead to the collapse of stock markets. It creates a bubble which bursts when many people attempt to sell stocks when their prices are high. This is what is referred to as the crowding effect.

Using mathematical expressions, the author is able to assembly an interesting synopsis to explain the troubles facing stock markets. You may not quite understand the mathematics involved, but you will get the point. After reading this book, you may keep away from stock markets when price go low.

 

Category: Books

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