In the paper, “panic selling” is defined as a 90% decline in the balance of an investment account, of which at least 50% was due to the investor choosing to sell off assets.
Say you had $100,000 invested, and the stock market went down 20% — leaving you with $80,000. But then you started to freak out; “what if the market keeps falling?” So, you sell another $70,000. Leaving you with just $10,000 left invested and $70,000 in cash.
Despite its name, often, there appears to be a strategy behind the concept of panic selling. Many investors engage in panic selling to preserve capital and avoid further losses.