Study: Investor Fears of Crash Could Fuel Stock Market Performance

A recent study suggests that concerns among investors about a possible stock market crash may actually contribute to increased stock performance.

What Happened: According to a survey, over half of Americans foresee a looming crash in the U.S. stock market. Strikingly, this widespread anxiety might not heighten the chances of a crash occurring. In fact, the opposite could be true.

A study conducted in the first quarter of 2025 by Allianz Life indicated that 51% of those surveyed were worried about a significant market downturn in the near future.

This fear, however, is seen as a contrarian signal, suggesting that stock performance can improve when investor anxiety about a crash rises, in contrast to periods of calmness.

Supporting this view, an analysis by Yale University professor Robert Shiller from data collected since 2001 suggests that the S&P 500’s total-return index often does better following the months where the risk of a crash is perceived as high.

Also Read: Bear market in diversification eases as investors seek alternative assets.

Despite the overwhelming fear of a crash, research led by Harvard University finance professor Xavier Gabaix shows that the actual chance of experiencing a stock-market crash in the next six months is very low, at just 0.33%.

While this research mainly looks at one-day dips in the market, it's important to note that major bear markets can happen even without any drastic one-day falls.

Thus, it seems that investors should be more cautious about significant bear markets than about sudden crashes.

Why It Matters: This study highlights the intricate relationship between investor sentiment and market performance. It suggests that widespread panic about a crash, rather than indicating an upcoming downturn, may serve as a sign of robust market performance ahead.

Such a surprising discovery emphasizes the need to understand investor psychology when forecasting market trends. Moreover, it stresses that investors ought to concentrate on long-term market developments instead of short-lived fluctuations.

investors, stocks, market, performance, anxiety