Black Monday (1987)
The Dow Jones Industrial Average fell 22.6 percent on October 19, 1987, as selling swept markets around the world.
Markets in Asia fell before trading began in the United States. By the end of the U.S. session the Dow had lost 508 points. Thomas Thrall, then a trader at the Chicago Mercantile Exchange, later recalled how quickly traders realized that the markets they worked in were linked to markets overseas.
One strategy that came under scrutiny was portfolio insurance. It was designed to limit losses by selling stock-index futures as prices fell. When many institutions tried to sell into an already falling market, their orders added to the pressure. Reviews of the crash also examined the strain on trading systems and the shortage of buyers.
A related topic is 2010 Flash Crash.
Bibliography:
- Bernhardt, D., & Eckblad, M. (2013). Stock market crash of 1987. Federal Reserve History.