On this day – October 19th

Black Monday

October 19, 1987 was the date when a sudden, severe and largely unexpected systemic shock impaired the functioning of the global financial market system, threatening its stability through a stock market crash, along with crashes in the futures and options markets.

The crisis affected markets around the world; however, no international news event or change in market fundamentals has been shown to have had a strong effect on investor behaviour. Instead, contemporaneous causality and feedback behaviour between markets increased dramatically during this period. In an environment of increased volatility and uncertainty, investors were reacting to changes in stock prices and to communication with other investors in a self-reinforcing contagion of fear.

The Dow Jones Industrial Average (DJIA) fell 508 points to 1,738.74 (22.61%).

A popular explanation for the 1987 crash was computerized selling dictated by portfolio insurance hedges. In program trading, computers execute rapid stock trades based on external inputs, such as the price of related securities. As computer technology became widespread, program trading grew dramatically within Wall Street firms. After the crash, many blamed program trading strategies for blindly selling stocks as markets fell, exacerbating the decline. Some economists theorized that the speculative boom leading up to October was caused by program trading, and that the crash was merely a return to normalcy. Either way, program trading ended up taking the majority of the blame in the public eye for the 1987 stock market crash.

After Black Monday, regulators overhauled trade-clearing protocols to bring uniformity to all prominent market products. They also developed new rules, known as "trading curbs" or colloquially as circuit breakers, allowing exchanges to temporarily halt trading in instances of exceptionally large price declines in some indexes; for instance, the DJIA.

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