Black Swan Economics
The Impact of the Stock Market on the Real Economy
DOI:
https://doi.org/10.47611/jsrhs.v14i1.8801Keywords:
Economics, Black Swans, Macroeconomic Crises, Macroeconomics, Financial Markets, Stock Market Crashes, Economic impact, Employment recovery, purchasing power, market divergenceAbstract
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.
Downloads
References or Bibliography
Barro, R. J., Ursúa, J. F., & Harvard University. (n.d.). Macroeconomic Crises since 1870. In Brookings Papers on Economic Activity [Journal-article]. https://www.brookings.edu/wp-content/uploads/2008/03/2008a_bpea_barro.pdf
Campbell, J. Y., & Shiller, R. J. (1988). The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors. Review of Financial Studies, 1(3), 195–228. https://doi.org/10.1093/rfs/1.3.195
Eckblad, B. D. B. a. M. (n.d.). Stock market crash of 1987. Federal Reserve History. https://www.federalreservehistory.org/essays/stock-market-crash-of-1987
Gross domestic product. (2024, July 25). https://fred.stlouisfed.org/series/GDP#0
Kilic, M., Wachter, J. A., & National Bureau of Economic Research. (2015). RISK, UNEMPLOYMENT, AND THE STOCK MARKET: a RARE-EVENT-BASED EXPLANATION OF LABOR MARKET VOLATILITY (Working Paper 21575). https://www.nber.org/system/files/working_papers/w21575/w21575.pdf
Marples, A. (2020, September 18). The South Sea Bubble of 1720 - The National Archives blog. The National Archives Blog. https://blog.nationalarchives.gov.uk/the-south-sea-bubble-of-1720/
Richardson, B. G. (n.d.). Stock market crash of 1929. Federal Reserve History. https://www.federalreservehistory.org/essays/stock-market-crash-of-1929
Shiller, R. J. (2016). Irrational exuberance: Revised and Expanded Third Edition. Princeton University Press.
South Sea Bubble. (n.d.). Royal Museums Greenwich. https://www.rmg.co.uk/stories/topics/south-sea-bubble#:~:text=The%20South%20Sea%20Bubble%20was,in%20Central%20and%20Southern%20America.
Taleb, N. N. (2008). The Black Swan: The Impact of the Highly Improbable. Penguin UK.
Unemployment rate. (2024, August 2). https://fred.stlouisfed.org/series/UNRATE#0
United States stock market confidence indices. (n.d.). Yale School of Management. https://som.yale.edu/centers/international-center-for-finance/data/stock-market-confidence-indices/united-states
US Census Bureau. (2021, December 16). Bicentennial Edition: Historical Statistics of the United States, Colonial times to 1970. Census.gov. https://www.census.gov/library/publications/1975/compendia/hist_stats_colonial-1970.html
Wachter, J. & National Bureau of Economic Research. (2008). Can Time-Varying risk of rare disasters explain aggregate stock market volatility? In NBER Working Paper Series (No. 14386). https://www.nber.org/system/files/working_papers/w14386/w14386.pdf
Wikipedia contributors. (2024, February 4). Kennedy Slide of 1962. Wikipedia. https://en.wikipedia.org/wiki/Kennedy_Slide_of_1962
Wikipedia contributors. (2024b, August 14). Tulip mania. Wikipedia. https://en.wikipedia.org/wiki/Tulip_mania
Published
How to Cite
Issue
Section
Copyright (c) 2025 Marta Pauksta
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright holder(s) granted JSR a perpetual, non-exclusive license to distriute & display this article.
