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Trying to understand stock market crash, and the effect on individual co. stocks
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TSRigerZ
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 Aug 4 2021, 07:12 PM, updated 5y ago
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Take for example the March 2020 crash due to COVID. https://en.wikipedia.org/wiki/2020_stock_market_crashInvestors globally panic-selling which caused major indices like DJI, S&P 500 to crash. How does this then cause individual company stocks locally to crash together? Is it a domino effect that when major indices crash, other indices (ours being KLCI) will "just follow"? How does the chain reaction mechanism work here? Then when KLCI crashes, local investors panic sell which cause company stock prices to drop? |
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TSRigerZ
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Aug 5 2021, 09:45 AM
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QUOTE(propertyfeature @ Aug 5 2021, 12:50 AM) Market sentiment primarily, overly pessimistic perception of the current moment which leads to fear in the market which causes investor to react emotionally eg. cut loss / panic sell.. When there are more sellers compared to buyers in the market, it will cause downward pressure in the share price. Even though, it might not affect the company fundamentally. Meaning, when global index holders panic sell and cause a crash Then KLCI holders also panic sell and cause a local crash Then company share holders also panic sell and cause the company price to crash Betul? |
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TSRigerZ
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Aug 6 2021, 12:24 AM
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QUOTE(kelvinlym @ Aug 5 2021, 10:44 PM) Indices are based on the underlying prices. It’s rather the underlying stocks in the index which crash which then causes the index to crash. Not the other way round. Then there’s the algorithms who sell based on market sentiments. So automatically they also sell. Then more people see prices crashing, then more people sell. The chain effect will then start. this really clears things up, thanks! 👍 |
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