Panic Selling and Panic Sellers

How frequently and permanently do individual U.S. investors sell stocks in a panic? In their August 2021 paper entitled “When Do Investors Freak Out?: Machine Learning Predictions of Panic Selling”, Daniel Elkind, Kathryn Kaminski, Andrew Lo, Kien Wei Siah and Chi Heem Wong examine frequency, timing and duration of panic selling. They define panic selling as a drop of at least 90% in account equity value within a month, of which at least 50% is due to trading. They also estimate the opportunity of cost of panic selling. Finally, they apply deep neural network software to predict a month in advance which individuals will panic sell based on recent market conditions and investor demographics/financial history. Using account equity value and trade data for 653,455 individual U.S. brokerage accounts belonging to 298,556 households during January 2003 through December 2015, they find that:

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