How deep was the September 2001 stock market crisis?: putting recent events on the American and French markets into perspective with an index of market shocks

Markets reacted strongly to the World Trade Center attacks both in Europe and in the United States. The extent of this crisis was difficult to assess at the time, underlining the need for a specific tool to measure the magnitude of financial crises. A first measure was recently proposed and applied to the foreign exchange market by Zumbach et al (2000-a and 2000-b). Their measure relies on an analogy with geophysics; the related Index of Market Shocks (IMS) that we propose here is also the counterpart of the Richter scale used for earthquakes. We apply this measure on the French and the American stock markets to put recent market events into perspective. The crisis triggered by the September attacks was actually the worst since 1987, and the 9th when compared to major historical ones.