Stock Indicator
Stock Market Crashes
Research by finance professor Xavier Gabaix theorizes a 1-day stock market drop of 20% or more is expected to occur once every 100 years; a 15% plunge once every 50 years, and a 10-15% daily drop once every 13 years. His research uses stock market data dating back to the early 1900s.
Gabaix feels stock crashes are inevitable because very large institutional investors dominate the market. Occasionally, these investors want to get out of stocks at the same time.
The DJIA fell 22.6% on October 19, 1987. An equivalent drop in October 2013 would mean a loss of more than 3,400 points. Back in 1987, stocks fully recovered within two years. According to Gabaix, in the past, stocks did not recover, on average, for 10 years after a crash. A study by Duke University professor Campbell Harvey found > 33% of the time, when the S&P 500 suffered a big loss, so did gold.