A stock market crash occurs when there is a sharp and sudden decline in stock prices, often triggered by multiple economic and psychological factors. Below are some of the key reasons behind such crashes:

1. Economic Downturn

• Recession Risks: When the economy slows down, businesses struggle, unemployment rises, and investors lose confidence, leading to mass sell-offs.

• Inflation & Interest Rate Hikes: High inflation forces central banks to increase interest rates, making borrowing expensive and reducing corporate profits.

• Deflationary Pressures: A steep drop in prices can hurt revenues and discourage spending, leading to stock devaluation.

2. Market Speculation & Asset Bubbles

• Overvalued Stocks: Excessive speculation can inflate stock prices beyond their actual worth, eventually causing a correction.

• Leverage & Margin Calls: When investors buy stocks using borrowed funds, a downturn can force them to sell quickly, accelerating the crash.

3. Global & Political Uncertainty

• Wars & Conflicts: Geopolitical tensions or wars create market instability, impacting investor sentiment.

• Trade Disruptions & Sanctions: Restrictions on international trade can lead to economic slowdowns, affecting global markets.

4. Unexpected Crises (Black Swan Events)

• Pandemics & Health Emergencies: Events like COVID-19 can disrupt economies, forcing businesses to shut down and investors to panic.

• Natural Disasters & Cyber Threats: Large-scale disasters or cyberattacks on financial institutions can weaken market confidence.

5. Financial System Failures

• Bank Collapses & Credit Crunch: If major banks fail or experience liquidity issues, it can create widespread financial panic.

• Excessive Debt & Defaults: High corporate or government debt without a sustainable repayment plan can trigger a market crash.

6. Fraud, Manipulation & Regulatory Challenges

• Corporate Scandals: Major fraud cases, such as those involving large corporations, can damage investor trust and lead to sell-offs.

• Sudden Policy Changes: Government-imposed regulations, tax changes, or restrictions on trading can create uncertainty in the stock market.

7. Panic Selling & Automated Trading

• Herd Mentality: When investors see prices dropping, many panic and start selling, which worsens the crash.

• Algorithmic Trading: Automated systems react to market trends, sometimes intensifying the decline through rapid sell-offs.

A stock market crash often results from a mix of these factors, rather than just one cause. Staying informed and making rational investment decisions can help mitigate risks.