The 2020 U.S. Stock Market Crash

• Activity Number: 168 - Risk analysis and related topics
• Type: Contributed
• Date/Time: Tuesday, August 10, 2021 : 10:00 AM to 11:50 AM
• Sponsor: Section on Risk Analysis
• Author(s): Min Shu* and Ruiqiang Song and Wei Zhu
• Companies: University of Wisconsin Stout and Michigan Technological University and Stony Brook University
• Keywords: 2020 U.S. stock market crash; COVID-19; Log-periodic power law singularity (LPPLS); Financial bubble and crash

Abstract

We used the log-periodic power law singularity (LPPLS) methodology to systematically investigate the 2020 stock market crash in the U.S. equities sectors using the Wilshire 5000 Total Market index, the S&P 500 index, the S&P MidCap 400 index, and the Russell 2000 index. During the crash, all four indexes lost more than a third of their values within five weeks, while both the middle capitalization stocks and the small capitalization stocks have suffered much greater losses than the large capitalization stocks and stocks overall. The results indicate that the price trajectories of these indexes prior to the 2020 stock market crash have clearly featured the obvious LPPLS bubble pattern and were indeed in a positive bubble regime. Contrary to the popular belief that the COVID-19 led to the 2020 stock market crash, the 2020 U.S. stock market crash was largely endogenous, stemming from the increasingly systemic instability of the stock market itself.