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The analysis shows that financial market crashes disrupt the economy and employment, highlighting market participants' optimism.
This paper analyzes eight financial market crashes in the U.S. spanning the period from 1920 to 2024. I found that these events negatively impact the economy, employment, and the purchasing power of people. Additionally, I found that financial markets begin to diverge from economic activity, as measured by real GDP and the fixed income market indicators, prior to the crashes. I also observed that professional market participants usually do not anticipate these market events and remain very optimistic about quick market recovery immediately following the crash. Finally, I found that it takes up to three years for employment levels to return to normal, which is significantly longer than it takes consumer prices to recover to pre-crash levels.
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Marta Pauksta (2025) studied this question.
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