A stock market crash is a sudden, unexpected, and abrupt drop in stock prices. The drop in prices leads to frenetic selling of stock, which exacerbates the situation and causes a downward cycle of prices until selling pressure is exhausted.
A stock market crash is a devastating economic event that can take years to recover from. It took over 25 years for many stocks to recover from the US Crash in 1929. The US suffered another major stock market crash in October of 1987 when over a span of five days; the market fell by over 30% and it did not fully recover until September 1989.
Stock market crashes often begin in an environment of an overvalued stock market. When this is followed by a significant event (i.e. banking crises, geopolitical crises, economic event, etc.), investors reevaluate their optimistic view and begin selling. The high volume of selling often leads to fear and then panic as more and more investors try to cut their losses.
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