Category: Finance
Black Monday
On October 19, 1987 stock markets around the world crashed, a global financial crisis which started from Hong Kong and was spread to Europe and the United States as well. It came be to known as the Black Monday. Wall Street went mad. The Dow Jones Industrial Average fell 508 points (22%) to 1738.74, a $500 billion decrease in value which is still the biggest one-day loss in the history of the index. S&P 500 also dropped 57.64 points (20.4%) to 225.06. There have been numerous reasons as to why this massive drop happened. Although many blame...
Moral Hazard
Support for bad banks also raises the specter of what economists call moral hazard. If bankers know that the central bank will lend cheaply when liquidity runs dry, they needn’t take care to avoid crises in the first place. In 1873, The Economist’s editor-inchief Walter Bagehot described the danger this way: If the banks are bad, they will certainly continue bad and will probably become worse if the Government sustains and encourages them. The cardinal maxim is, that any aid to a present bad Bank is the surest mode of preventing the establishment of a future good Bank. Mastering ‘Metrics...
Mark Twain Effect
“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” The Above mentioned quote is adopted from Mark Twain’s Pudd’nhead Wilson book. The phenomenon “October Effect” in stock markets has gotten its name from this very excerpt. The effect, observed in some markets, talks about the general low returns of stocks in October. Proponents of this idea usually refer to the time of the three stock market failures of the past decade. Let’s have a look at these crises: Crisis Date...
