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Introduction
The stock market, often regarded as the “barometer” of economic activity, constitutes a fundamental component of the financial systems in economies worldwide. It performs critical functions, including optimizing the allocation of capital and risk, transmitting and reflecting market information, and addressing the financing needs of enterprises while catering to the investment demands of individuals (Arestis et al. 2001; Chen et al. 2023b). Traditional financial development theory posits that financial development serves as a catalyst for economic growth. However, global financial development practices have increasingly revealed vulnerabilities in financial systems, accompanied by a notable rise in the frequency and intensity of financial market shocks (Wang et al. 2023).
Over the past decade, abnormal stock market fluctuations have become more frequent (Chen et al. 2023a; Jiang et al. 2022b; Fan and Zhang, 2024). For instance, consider the case of Meta, a leading U.S. technology company. On February 3, 2022, Meta experienced a historic 26.39% decline in market capitalization, representing the largest single-day loss in U.S. market history. Later that year, on October 27, Meta’s market value plummeted by another 24.56%. These substantial declines in the share prices of major corporations have heightened public and governmental awareness of stock price crash risk (SPCR). SPCR refers to the sudden, dramatic, and unpredictable collapse of stock market indices or individual stock prices (Fan and Zhang, 2024).
The efficient functioning of capital markets is critical, as they mobilize, aggregate, and allocate financial resources, thereby serving as a powerful driver of economic development (Afghahi et al. 2024). However, stock price crashes, characterized by their abruptness, speed, and potential for contagion, have far-reaching consequences. Such crashes erode corporate shareholder wealth, reduce social welfare (Chen et al. 2023a), and trigger widespread investor panic and withdrawals. This, in turn, escalates corporate capital costs, disrupts market confidence, and ultimately leads to the misallocation of economic resources. Frequent stock price crashes also amplify the risk of systemic market collapse through cross-contagion, threaten the stability of financial systems, and exacerbate financial risk (Hong and Stein, 2003; Piotroski et al. 2015). Consequently, mitigating SPCR has become an increasingly important area of academic inquiry in recent years (Jiang et al. 2022b; Eugster and Wang, 2023; Pham and Nguyen, 2023). Addressing SPCR is not only essential for safeguarding financial stability...