Medical Hypotheses (2008) 71, 972–974

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Black Monday on stock markets throughoutthe world – A new phenomenon of collective panicdisorder? A psychiatric approach

Wolfgang Sperling *, Stefan Bleich, Udo Reulbach

Department of Psychiatry and Psychotherapy, University Hospital Erlangen, Schwabachanlage 6,91052 Erlangen, Germany

Received 25 March 2008; accepted 1 April 2008

Summary Drastic losses on the stock markets within short periods have been the subject of numerousinvestigations in view of the fact that they are often irrational. Stock exchanges around the world suffereddramatic losses on Monday 21 January 2008, and again recently on Monday 17 March 2008. Regardless of culturalaffiliation, public reporting of the global collapse in stock prices on Monday was striking in its almost unified mood ofpanic, anxiety and general fear of further partially arbitrary trading losses. These partly irrational mechanisms of aninternational financial crisis seem to fulfil several criteria of typical panic disorders according to classificationsystems like ICD-10 or DSM-IV. The new phenomenon affects international stock markets in the sense of a globalpanic disorder (GPD).

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Hypothesis in brief

In summary, a completely new element of affec-tive dysregulation and disease induction on a globalscale is possibly occurring; we call global panic dis-order (GPD). From a psychiatric point of view is theextent to which this postulated society-wide phe-nomenon also withstands classification on the basisof the criteria of a symptomatic assignment to thepsychiatric diagnosis of anxiety.

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* Corresponding author. Tel.: +499131 8536194; fax: +4991318536092.

E-mail address: wolfgang.sperling@uk-erlangen.de (W. Sper-ling).

Background

The Financial Times Stock Exchange (FTSE) 100 in-dex closed more than 323 points down on Monday21 January 2008 [1]. Despite a known Monday ef-fect [2–5], the situation was more serious. Thistrading day ‘‘was fuelled by growing anxiety thatAmerican economic recession would spread acrossthe Atlantic and infect economies in Europe andthe rest of the world’’ [1]. Across Asia and Europe,stock exchanges plunged, e.g. Germany’s bench-mark DAX index 7% and France’s CAC with losseson a similar scale. The combined losses of theLondon, Paris and Frankfurt markets aloneamounted to more than 350 billion Dollars [1].

ved.

Black Monday on stock markets throughout the world 973

Drastic losses on the stock markets withinshort periods have been the subject of numerousinvestigations in view of the fact that they areoften irrational [6,7]. Regardless of cultural affil-iation, public reporting of the global collapse instock prices on Monday was striking in its almostunified mood of panic, anxiety and general fearof further trading losses, especially of a world-wide recession triggered by the ongoing crisis inthe USA. Thus, even internationally renownedstock exchange experts started to question thenegative effect of the American recession oncountries in quite the opposite situation, withblooming economies on an upward trend, and todiscuss the significance of a mass psychologicaleffect in the age of globalisation (‘‘cascades’’)[8]. In the light of the nomenclature most com-monly used by the lay press in this connectionof anxiety or similar terms of general panic, thequestion that is raised from a psychiatric pointof view is the extent to which this postulatedsociety-wide phenomenon also withstands classifi-cation on the basis of the criteria of a symptom-atic assignment to the psychiatric diagnosis ofanxiety according to ICD-10 or DSM-IV. Commonto all anxiety disorders in general is that anxietyis the dominant element in some form or other.The most important characteristic of panic disor-ders are recurrent severe panic attacks that oc-cur suddenly and without warning, in contrastto the diffuse anxiety experienced by healthypeople in response to specific situations. Classi-cally, the symptoms develop suddenly, oftenincreasing in intensity over the first 10–20 min,and dissipating after 10–30 min, but sometimesonly hours later. Panic attacks are often followedby a long-lasting fear of a renewed attack (antic-ipatory anxiety) and regularly recurring panic at-tacks, whereby the frequency may vary betweenseveral times a day and weekly to monthly.Anticipatory anxiety, in other words fear of anxi-ety and a conviction of the seriousness of thesymptoms or the situation, is decisive for devel-opment of panic disorder, especially if it leadsto increasing avoidance behaviour, according tothe classification details. Additional physicalsymptomatic sequelae are immaterial within theevaluation of a collective symptomatology.

Further evidence

There is persuasive evidence that psychologicalbiases substantially affect market price [8,9]. Gen-erally, market rationality must be differentiatedinto exogenous and endogenous rationality. Exoge-

nous rationality is defined as a situation in whichthe market price optimally reflects some exoge-nous objective quantity. Endogenous rationalityrepresents a situation in which each market partic-ipant has an unbiased estimation of the future mar-ket price, even if the market price is completelydetached from fundamentals, and is affected bybehavioural biases that are impossible to arbitrageaway.

If one examines the individual stock marketcrashes over a period of 20 years [1] from the pointof view of the postulated triggering factors, apartfrom international political events, financial criseson the US stock market essentially turn out to bethe primary motor of a domino effect on virtuallyall western financial capitals, regardless of theirrespective econopolitical situation, in the senseof a downward spiral to which the criterion offounded fear of recession in the respective regionis attached. From the point of view of market ratio-nality, it is in particular the endogenous rationalitythat appears to be affected here. The irrationalityof this virtually automatistic model has often beendescribed in specialist journals, but never underthe model of a collective pathogenic globalisedmechanism of collective panic. The term collectivepanic, in the sense of an irrational affective behav-ioural reaction that cannot be explained by logicalexplanatory approaches, can be found in numerousdifferent forms in our modern, electronically net-worked society, as demonstrated by reactions toSARS [10] CJD [11], terrorism [12], and the fearof all manner of different catastrophes in the med-ia, and can possibly be interpreted as a new phe-nomenon of the globalised media age. Convincingrelationships have already been established be-tween terrorism and the development of stockmarket prices [13].

Implication of hypothesis

This completely new form of information trans-parency is accompanied by an increased risk ofthe dissemination of affective dysfunctions,regardless of whether or not the market can beclaimed to be behaving irrationally [14]. It canbe accepted as plausible that emotional compo-nents play a by no means negligible role in estab-lishing the price of a commodity [15] and thusultimately in the price correction of stocks andshares quoted on stock exchanges. The most sen-sitive indicators of this, global measuring sensorsso to speak, are those centres that are dependenton media transparency, i.e. the internationalstock exchanges and financial markets. The psy-

974 Sperling et al.

chological element within these structures is fargreater than has been measurable to date. Collec-tive mass phenomena have been the subject ofcontroversial discussion for decades [16]. How-ever, it is striking that collective panic reactions(‘‘mass panic’’) have rarely been investigated[17–19].

In our case, a completely new element ofaffective dysregulation and disease induction ona global scale is possibly occurring, which can onlybe described with the term global panic reaction(GPD). The fact that classical criteria of panicare also identifiable according to the criteria ofmodern classification schedules is demonstratedby the mostly limited course (usually rapid coun-ter-regulation and normalisation), anticipatoryanxiety concerning new attacks, avoidance behav-iour in the form of countermeasures and the ini-tially deterrent effect on buyers, which precedesan initially hesitant and later rekindled buyingbehaviour. The problematic nature of the autom-atism or domino effect experienced to date is evi-dent in the recurrence of the identical rituals andautomatisms of primary triggering, irreversibleimmediate global reaction and subsequent recov-ery with the prospect of renewed triggering inthe near future, as observed over the past 20years.

In the light of the psychological identification ofthe problem, it would appear that there is a needfor urgent action. Cognitive behavioural therapy(CBT) for panic disorder aims to change ‘‘cata-strophic’’ cognitions. Psychoeducation yields to abetter understanding of mechanism of fear andpanic. Both strategies aim to interrupt an un-healthy circulation of anxiety and its self-deceivingapproaches. It should be part of a modern curricu-lum for both, professional and non-professionalmembers of the international financial market tolearn these mechanisms and adequate reactions.Under certain circumstances, the economy maybenefit from straightforward CBT-based strategies.

References

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