[oldleft]

But most [analysts] agreed that the . . . problem was the nation’s spiraling indebtedness and chronically high trade deficits. Americans were consuming more than they were producing, importing the difference, and paying for with borrowed money . . . Foreign investors had lost confidence in Reaganomics and were no longer willing to finance America’s spending binge.

That is, if most analysts have a few extra chromosomes.

The crash had a lot to do with the internal strucutures set up at the NYSE, including computer trading with no stop limits. The market acutally bounced back in a fairly big way THE NEXT TRADING DAY! And, for the record, the Dow was up at the end of '87 for the year.

[mcvey]

Thank you, old left, that is the type of data for which I was looking.

[tcostell]

To elaborate a little... the cause of the 87 market crash was a risk management tactic known as "Portfolio Insurance". (see the writings of Richard Bookstaber PHD)

In this tactic, an equity portfolio manager can hedge his investment by selling index futures short into a falling market. Since there are no uptick rules for futures it allowed him to get a hedge in immediate time. But since the short selling of the index future accelerated the downward pressure on the overall market, and that pressure was translated back to equities by the use of index arbitrage programs, it caused an immediate need for re-hedging, and it became a downward spiral.

If one manager does it, it works fine, when all managers do it, it's a disaster.


On a side note, during one point in my career, I was working in the same room with Rick Bookstaber (the guy who's theories caused the crash) on one side, and Stanley Shopkorn (ex head of equity trading at Salamon brothers and the guy credited with stopping the crash) on the other.

To my knowledge, they got along quite well.