2005
DOI: 10.1108/01409170510784742
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Derivatives and the 1987 market crash

Abstract: 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.

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Cited by 4 publications
(2 citation statements)
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“…Was this purely coincidence, or are the two events related? The exact cause of the October 1987 decline is still a matter of debate (see, for example, Baigent and Massaro, 2005). However, the Treadway Commission was conducting its investigation into fraudulent financial reporting in the two years leading up to the 1987 market crash.…”
Section: A Brief History Of Relevant Events and Trends: 1987-2007mentioning
confidence: 99%
“…Was this purely coincidence, or are the two events related? The exact cause of the October 1987 decline is still a matter of debate (see, for example, Baigent and Massaro, 2005). However, the Treadway Commission was conducting its investigation into fraudulent financial reporting in the two years leading up to the 1987 market crash.…”
Section: A Brief History Of Relevant Events and Trends: 1987-2007mentioning
confidence: 99%
“…Institutional investors are aware of this risk, perversely due to their collective "sheepishness for risk" and herd-like behavior in risk avoidance. The comprehensive analysis by Baigent and Massaro (2005) shows how the very mechanisms of portfolio insurance designed to stabilize small market fluctuations actually worsened the large ones. Hence it appears to them that little can be done by the individual investor attempting to make his or her institution benefit from all the market devices now available, and all the mathematical niceties that could accompany them.…”
Section: Great Expectations Meager Satisfactionsmentioning
confidence: 99%