Black Monday on stock markets throughout

the world A new phenomenon of collective panic

disorder? 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 numerous
investigations in view of the fact that they are often irrational. Stock exchanges around the world suffered
dramatic losses on Monday 21 January 2008, and again recently on Monday 17 March 2008. Regardless of cultural
afliation, public reporting of the global collapse in stock prices on Monday was striking in its almost unied mood of
panic, anxiety and general fear of further partially arbitrary trading losses. These partly irrational mechanisms of an
international nancial crisis seem to full several criteria of typical panic disorders according to classication
systems like ICD-10 or DSM-IV. The new phenomenon affects international stock markets in the sense of a global
panic disorder (GPD).

c
2008 Elsevier Ltd. All rights reserved.
Hypothesis in brief
In summary, a completely new element of affec-
tive dysregulation and disease induction on a global
scale is possibly occurring; we call global panic dis-
order (GPD). From a psychiatric point of view is the
extent to which this postulated society-wide phe-
nomenon also withstands classication on the basis
of the criteria of a symptomatic assignment to the
psychiatric diagnosis of anxiety.
Background
The Financial Times Stock Exchange (FTSE) 100 in-
dex closed more than 323 points down on Monday
21 January 2008 [1]. Despite a known Monday ef-
fect [25], the situation was more serious. This
trading day was fuelled by growing anxiety that
American economic recession would spread across
the Atlantic and infect economies in Europe and
the rest of the world [1]. Across Asia and Europe,
stock exchanges plunged, e.g. Germanys bench-
mark DAX index 7% and Frances CAC with losses
on a similar scale. The combined losses of the
London, Paris and Frankfurt markets alone
amounted to more than 350 billion Dollars [1].
0306-9877/$ - see front matter

c
2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.mehy.2008.04.028
*
Corresponding author. Tel.: +499131 8536194; fax: +499131
8536092.
E-mail address: wolfgang.sperling@uk-erlangen.de (W. Sper-
ling).
Medical Hypotheses (2008) 71, 972974
www.elsevier.com/locate/mehy
Drastic losses on the stock markets within
short periods have been the subject of numerous
investigations in view of the fact that they are
often irrational [6,7]. Regardless of cultural afl-
iation, public reporting of the global collapse in
stock prices on Monday was striking in its almost
unied mood of panic, anxiety and general fear
of further trading losses, especially of a world-
wide recession triggered by the ongoing crisis in
the USA. Thus, even internationally renowned
stock exchange experts started to question the
negative effect of the American recession on
countries in quite the opposite situation, with
blooming economies on an upward trend, and to
discuss the signicance of a mass psychological
effect in the age of globalisation (cascades)
[8]. In the light of the nomenclature most com-
monly used by the lay press in this connection
of anxiety or similar terms of general panic, the
question that is raised from a psychiatric point
of view is the extent to which this postulated
society-wide phenomenon also withstands classi-
cation on the basis of the criteria of a symptom-
atic assignment to the psychiatric diagnosis of
anxiety according to ICD-10 or DSM-IV. Common
to all anxiety disorders in general is that anxiety
is 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 contrast
to the diffuse anxiety experienced by healthy
people in response to specic situations. Classi-
cally, the symptoms develop suddenly, often
increasing in intensity over the rst 1020 min,
and dissipating after 1030 min, but sometimes
only hours later. Panic attacks are often followed
by a long-lasting fear of a renewed attack (antic-
ipatory anxiety) and regularly recurring panic at-
tacks, whereby the frequency may vary between
several times a day and weekly to monthly.
Anticipatory anxiety, in other words fear of anxi-
ety and a conviction of the seriousness of the
symptoms or the situation, is decisive for devel-
opment of panic disorder, especially if it leads
to increasing avoidance behaviour, according to
the classication details. Additional physical
symptomatic sequelae are immaterial within the
evaluation of a collective symptomatology.
Further evidence
There is persuasive evidence that psychological
biases substantially affect market price [8,9]. Gen-
erally, market rationality must be differentiated
into exogenous and endogenous rationality. Exoge-
nous rationality is dened as a situation in which
the market price optimally reects some exoge-
nous objective quantity. Endogenous rationality
represents a situation in which each market partic-
ipant has an unbiased estimation of the future mar-
ket price, even if the market price is completely
detached from fundamentals, and is affected by
behavioural biases that are impossible to arbitrage
away.
If one examines the individual stock market
crashes over a period of 20 years [1] from the point
of view of the postulated triggering factors, apart
from international political events, nancial crises
on the US stock market essentially turn out to be
the primary motor of a domino effect on virtually
all western nancial capitals, regardless of their
respective econopolitical situation, in the sense
of a downward spiral to which the criterion of
founded fear of recession in the respective region
is attached. From the point of view of market ratio-
nality, it is in particular the endogenous rationality
that appears to be affected here. The irrationality
of this virtually automatistic model has often been
described in specialist journals, but never under
the model of a collective pathogenic globalised
mechanism of collective panic. The term collective
panic, in the sense of an irrational affective behav-
ioural reaction that cannot be explained by logical
explanatory approaches, can be found in numerous
different forms in our modern, electronically net-
worked society, as demonstrated by reactions to
SARS [10] CJD [11], terrorism [12], and the fear
of all manner of different catastrophes in the med-
ia, and can possibly be interpreted as a new phe-
nomenon of the globalised media age. Convincing
relationships have already been established be-
tween terrorism and the development of stock
market prices [13].
Implication of hypothesis
This completely new form of information trans-
parency is accompanied by an increased risk of
the dissemination of affective dysfunctions,
regardless of whether or not the market can be
claimed to be behaving irrationally [14]. It can
be accepted as plausible that emotional compo-
nents play a by no means negligible role in estab-
lishing the price of a commodity [15] and thus
ultimately in the price correction of stocks and
shares quoted on stock exchanges. The most sen-
sitive indicators of this, global measuring sensors
so to speak, are those centres that are dependent
on media transparency, i.e. the international
stock exchanges and nancial markets. The psy-
Black Monday on stock markets throughout the world 973
chological element within these structures is far
greater than has been measurable to date. Collec-
tive mass phenomena have been the subject of
controversial discussion for decades [16]. How-
ever, it is striking that collective panic reactions
(mass panic) have rarely been investigated
[1719].
In our case, a completely new element of
affective dysregulation and disease induction on
a global scale is possibly occurring, which can only
be described with the term global panic reaction
(GPD). The fact that classical criteria of panic
are also identiable according to the criteria of
modern classication schedules is demonstrated
by the mostly limited course (usually rapid coun-
ter-regulation and normalisation), anticipatory
anxiety concerning new attacks, avoidance behav-
iour in the form of countermeasures and the ini-
tially deterrent effect on buyers, which precedes
an initially hesitant and later rekindled buying
behaviour. The problematic nature of the autom-
atism or domino effect experienced to date is evi-
dent in the recurrence of the identical rituals and
automatisms of primary triggering, irreversible
immediate global reaction and subsequent recov-
ery with the prospect of renewed triggering in
the near future, as observed over the past 20
years.
In the light of the psychological identication of
the problem, it would appear that there is a need
for urgent action. Cognitive behavioural therapy
(CBT) for panic disorder aims to change cata-
strophic cognitions. Psychoeducation yields to a
better understanding of mechanism of fear and
panic. Both strategies aim to interrupt an un-
healthy circulation of anxiety and its self-deceiving
approaches. It should be part of a modern curricu-
lum for both, professional and non-professional
members of the international nancial market to
learn these mechanisms and adequate reactions.
Under certain circumstances, the economy may
benet from straightforward CBT-based strategies.
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974 Sperling et al.