Exogenous shocks can catalyze crashes from "summary" of Why Stock Markets Crash by Didier Sornette
Exogenous shocks can catalyze crashes in financial markets when they trigger a chain reaction of cascading events that lead to a sudden and dramatic downturn. These shocks can come in various forms, such as geopolitical events, natural disasters, or unexpected economic news. When an exogenous shock occurs, it can disrupt the normal functioning of the market and create uncertainty among investors. This uncertainty can lead to panic selling as investors rush to mitigate their losses, causing prices to plummet. As more investors sell off their assets, it can create a domino effect where prices continue to decline rapidly.
The impact of an exogenous shock on the market can be amplified by factors such as leverage and herding behavio...
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