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Erik Postnieks |
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“The Smart Crash of October 19th” |
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The tumultuous stock market crash of October 19, 1987 was almost nothing of what so many analysts, investors, and observers believe it was. Instead of a panic, it was the restoration of sobriety and rationality. Instead of destroying confidence, it restored creditability in the market pricing mechanism. The steep market descent that the world witnessed actually prevented a long, gradual descent. By ending unjustified good times, the crash prevented bad times. Further, portfolio insurance and program trading did not worsen after the crash, they kept it from lasting longer. In the language of statistics, they increased its amplitude and compressed its duration. With sudden swiftness, the crash imposed the rational rules of a remarkable exercise of analytic intelligence. None of the most active participants in the market’s regular activities foresaw the depth, suddenness, or brevity of the correction. Everybody was caught off guard. And every body was wrong.
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Download PDF of full article. |
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Published by the Harvard Business Review |
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Date: May-June 1988 Authors: Avner Arbel, Steven Carvell, Erik Postnieks |
