A stock market crash is a sudden dramatic decline of stock

Stock

The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 prices across a significant cross-section of a stock market

Stock market

A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

, resulting in a significant loss of paper wealth

Paper wealth

Paper wealth means wealth as measured by monetary value, as reflected in the price of assets – how much money one's assets could be sold for. Paper wealth is contrasted with real wealth, which refers to one's actual physical assets....

. Crashes are driven by panic

Panic

Panic is a sudden sensation of fear which is so strong as to dominate or prevent reason and logical thinking, replacing it with overwhelming feelings of anxiety and frantic agitation consistent with an animalistic fight-or-flight reaction...

 as much as by underlying economic factors. They often follow speculative

Speculation

In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...

 stock market bubble

Stock market bubble

A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation....

s.

Stock market crashes are social phenomena

Social phenomenon

Social phenomena include all behavior which influences or is influenced by organisms sufficiently alive to respond to one another.-See also:*Forms of activity and interpersonal relations*List of sociology topics*Social fact-References:...

 where external economic

Economy

An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...

 events combine with crowd behavior

Crowd psychology

Crowd psychology is a branch of social psychology. Ordinary people can typically gain direct power by acting collectively. Historically, because large groups of people have been able to bring about dramatic and sudden social change in a manner that bypasses established due process, they have also...

 and psychology in a positive feedback

Positive feedback

Positive feedback is a process in which the effects of a small disturbance on a system include an increase in the magnitude of the perturbation. That is, A produces more of B which in turn produces more of A. In contrast, a system that responds to a perturbation in a way that reduces its effect is...

 loop where selling by some market participants drives more market participants to sell.