Crash of 1987

Crash of 1987

It was not the biggest crash in the history of the Dow Jones, but it has a reputation for being so. On October 19, 1987, U.S. society went into absolute panic, and the vast majority of investors flocked to sell their shares on Wall Street, registering a 22.6% drop in a single day (more than 500 billion dollars).

The crash began on the Hong Kong stock exchange, and spread to all international markets.

Despite the long period of time that has passed since then, the causes of the crash are still unknown, so there are still many doubts about what could have happened, labeling the event as the “black swan”.

There are two possible causes of the crash, summarized as an error in the trading software (as it was beginning to be digitized), or an overvaluation of the shares, coupled with a lack of liquidity on the part of the major banks.

  1. The most common explanation today is a sell-off in the trading software.
    Due to the increased availability of computer technology, the use of trading programs grew, and new programs for stock market management were created.
    In these programs, orders were executed without limit. Once the market started to go down, investors were forced to sell en masse, so the selling cascaded.
  2. Others instead claimed the crash was a return to normalcy, due to the bubble that existed in the value of stocks. There were macroeconomic reasons, such as interest rates and currency exchange, inflation and futures index controversies.

There was a strong controversy in the monetary policy of the G-7 nations (7 countries with the most political weight at the time), where the US wanted to increase the value of the dollar and limit its inflation, imposing greater restrictions. It was then that the Hong Kong Stock Exchange (backed by the dollar), collapsed because it could not revalue its economy due to the rise of the dollar, causing a distrust that spread internationally.


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