<blockquote>
  <p>the news of a downfall of stock prices hit investors, so they obviously
  wanted to get rid of their shares.</p>
</blockquote>

<p>This is not the way you want to think about prices. Stock prices are determined via the equilibrium of demand and supply. It sounds like you are assuming that they drop from the sky and investors react, but they are determined via the actions of investors. What happens is that news of the fundamentals of the economy (Things like interest rates, employment numbers, job forecasts, etc.) hit, investors react, and then price falls. </p>

<p>Suppose there are two investors A and B and a single stock. Suppose that <span class="math-container">$t=0$</span> both investors 'subjectively value' the stock at 10, this valuation is determined via each investors subjective expectations of future earnings and future prices. So the price at <span class="math-container">$t=0$</span> is 10 and lets suppose that investor A owns the stock. At <span class="math-container">$t=1$</span> news about the fundamentals of the economy hits, each agent updates their subjective value of the stock. Suppose that the 'value' to agent A is 5 and to agent B is 6. Its clear that Agent A will trade the stock to agent B at a price between 5 and 6, hence price falls endogenously not exogenously.  As this example illustrates, trade occurs between pessimistic sellers and relatively optimistic buyers.</p>

CC BY-SA 4.0
2019-11-07T15:35:08.060Z
You're assuming rational investors, which is not always the case. As long as price movements aren't "too large", it's probably safe to assume fundamentals drive markets.  But there's a threshold beyond which prices themselves drive investor decisions.  I'm not claiming to know what it is, but I would guess it was crossed in some of the more notable bubbles and crashes throughout history.
heh
CC BY-SA 4.0
2019-11-06T14:18:08.560Z
2019-11-06T14:18:08.560Z
user24629
<p>Even in a crash, some stocks do better than others.  In general, not every investor has the same exposure to the market, and so some investors do better than others.  A handful can likely afford to take risks, knowing that the market will rebound at some point. Fire sales happen en masse, and some people make out like kings. Remember that as long as your wealth doesn't fall to zero, relative prices are the only thing that "matters".</p>

<p>In general, your intuition seems reasonable: recessions concentrate wealth.</p>

CC BY-SA 4.0
2019-11-07T15:40:44.150Z
2019-11-07T15:40:44.150Z
heh
<p>I'm trying to walk through and understand the basic events of the great depression. I understand that at one point (Black Thursday) the news of a downfall of stock prices hit investors, so they obviously wanted to get rid of their shares.</p>

<p>Given the very high pace investors started to sell, there needs to be an equally big number of buyers, or -- more likely -- a not that big number of buyers, who bought that huge number of shares.</p>

<p>Is this a valid assumption?
If it is, I don't see who bought those shares.</p>

<supply-and-demand>
When everyone sells at an event of a recession, who buys?
Ficus Magnum
# When everyone sells at an event of a recession, who buys?

(Asked by: username_0 on 2019-11-06)

I'm trying to walk through and understand the basic events of the great depression. I understand that at one point (Black Thursday) the news of a downfall of stock prices hit investors, so they obviously wanted to get rid of their shares.

Given the very high pace investors started to sell, there needs to be an equally big number of buyers, or -- more likely -- a not that big number of buyers, who bought that huge number of shares.

Is this a valid assumption?
If it is, I don't see who bought those shares.

**Tags:** supply-and-demand


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## 2 answers

### Answer by username_1 on 2019-11-06. Score: 2

> the news of a downfall of stock prices hit investors, so they obviously
> wanted to get rid of their shares.

This is not the way you want to think about prices. Stock prices are determined via the equilibrium of demand and supply. It sounds like you are assuming that they drop from the sky and investors react, but they are determined via the actions of investors. What happens is that news of the fundamentals of the economy (Things like interest rates, employment numbers, job forecasts, etc.) hit, investors react, and then price falls.

Suppose there are two investors A and B and a single stock. Suppose that $t=0$ both investors 'subjectively value' the stock at 10, this valuation is determined via each investors subjective expectations of future earnings and future prices. So the price at $t=0$ is 10 and lets suppose that investor A owns the stock. At $t=1$ news about the fundamentals of the economy hits, each agent updates their subjective value of the stock. Suppose that the 'value' to agent A is 5 and to agent B is 6. Its clear that Agent A will trade the stock to agent B at a price between 5 and 6, hence price falls endogenously not exogenously. As this example illustrates, trade occurs between pessimistic sellers and relatively optimistic buyers.

> **Comments:**
> **username_2**: You're assuming rational investors, which is not always the case. As long as price movements aren't "too large", it's probably safe to assume fundamentals drive markets.  But there's a threshold beyond which prices themselves drive investor decisions.  I'm not claiming to know what it is, but I would guess it was crossed in some of the more notable bubbles and crashes throughout history.  

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### Answer by username_2 on 2019-11-07. Score: 0

Even in a crash, some stocks do better than others. In general, not every investor has the same exposure to the market, and so some investors do better than others. A handful can likely afford to take risks, knowing that the market will rebound at some point. Fire sales happen en masse, and some people make out like kings. Remember that as long as your wealth doesn't fall to zero, relative prices are the only thing that "matters".

In general, your intuition seems reasonable: recessions concentrate wealth.


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