The ‘COVID’ crash of the 2020 U.S. Stock market
Department of Civil, Environmental, and Geospatial Engineering
We employed the log-periodic power law singularity (LPPLS) methodology to systematically investigate the 2020 stock market crash in the U.S. equities sectors with different levels of total market capitalizations through four major U.S. stock market indexes, including the Wilshire 5000 Total Market index, the S&P 500 index, the S&P MidCap 400 index, and the Russell 2000 index, representing the stocks overall, the large capitalization stocks, the middle capitalization stocks and the small capitalization stocks, respectively. During the 2020 U.S. stock market 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. Our results indicate that the price trajectories of these four stock market 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 2020 US stock market crash was mainly due to the COVID-19 pandemic, we have shown that COVID merely served as sparks and the 2020 U.S. stock market crash had stemmed from the increasingly systemic instability of the stock market itself. We also performed the complementary post-mortem analysis of the 2020 U.S. stock market crash. Our analyses indicate that the probability density distributions of the critical time for these four indexes are positively skewed; the 2020 U.S. stock market crash originated from a bubble that had begun to form as early as September 2018; and the bubble profiles for stocks with different levels of total market capitalizations have distinct temporal patterns. This study not only sheds new light on the makings of the 2020 U.S. stock market crash but also creates a novel pipeline for future real-time crash detection and mechanism dissection of any financial market and/or economic index.
North American Journal of Economics and Finance
The ‘COVID’ crash of the 2020 U.S. Stock market.
North American Journal of Economics and Finance,
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