What is Market Disruption?

A market disruption is a sharp, rapid weakening of market performance in response to external forces.

How Does Market Disruption Work?

A market disruption often occurs as a result of an event or group of events that are widely perceived as economically detrimental. The anxiety becomes contagious, causing both investor confidence and consumer confidence to fall. The stock market can decline sharply in just a short space of time because trading becomes unstable and highly erratic.

The credit and subprime mortgage crisis of the late 2000s, for example, resulted in a market disruption that brought a halt to consumer spending, increases in unemployment, and wide day-to-day fluctuations in stock prices.

Why Does Market Disruption Matter?

The widespread effects of a market disruption are frequently rooted in consumer and investor perceptions rather than a fundamental collapse. As a way to 'short circuit' market disruptions, the New York Stock Exchange (NYSE) and other large exchanges have established contingencies that automatically stop all trading upon indications of sudden substantial losses beyond a reasonable level.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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