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We examine the role of program trading and portfolio insurance in the market crash of 1987. We argue that the only plausible explanation for the sequence and magnitude of the events in October 1987 is the existence of portfolio insurance. Other explanations such as in vestor behavior are discussed.

Economic fundamentals—such as economic growth, inflationary expectations, and monetary policy—cannot explain the worldwide rise in long‐term interest rates during 1994. The present paper investigates the extent to which the rise in rates was consistent with economic theory and domestic policies. It finds that it is necessary to introduce institutional factors to account for the widespread nature of the rise and the extent of the rise as well as, for some countries, the fact that long rates rose at all.

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