Black monday

crash 1987

The first contemporary global

financial crisis
Table of contents
Serial no. Name of the topic

1. What was Black Monday?

2. Black Monday trading graph

3. Causes of Black Monday

4. Timeline of Black Monday

5. The aftermath of the event

6. Reforms to promote resilience

7. Conclusions
What was black monday?
Black Monday occurred on Oct. 19, 1987, when the Dow Jones Industrial Average (DJIA) lost
almost 22% in a single day. The event marked the beginning of a global stock market decline,
and Black Monday became one of the most notorious days in financial history. By the end of
the month, most of the major exchanges had dropped more than 20%.

Economists have attributed the crash to a combination of geopolitical events and the advent
of computerized program trading that accelerated the selloff.
 Black monday trading chart

The above chart shows the

Dow Jones Industrial Average
during 1987 on the daily scale.
A symmetrical triangle with an
upward breakout appears in
February, suggesting
additional advances. The
falling wedge in April was a
loose pattern and that meant
poor performance. Price broke
out upward but soon
collapsed, nearly dropping to
the low where the falling
wedge chart pattern ended
Causes of black monday
01 02 03 04
A bull market Program Portfolio
Mass panic
due for trading insurance
correction
 01. During this time, investors
generate high expectations
regarding the stock market
performance and pool their
money readily into this sector.
Bull market An increasing consumer
confidence level, subsequently
due for increasing the cash flow into
correction this sector, allows companies
to increase annual turnover,
which leads to higher profits
A bullish market trend is represented by to be disbursed among
rising stock prices of various securities in the shareholders.
market, especially equity instruments.
One of the main factors that drove the
Black Monday crash was a strong bull
market that was overdue for a major
correction in prices since 1982. Stock
prices had since then tripled in value ,
rising by 44% in 1987 alone, prior to the
Black Monday crash.
 much of program

02. trading involves the

futures markets as
well as the cash
market. The most
simplistic and widely

Program known of these

strategies is index
arbitrage. Index
trading arbitrage is frequently
used by institutions
Program trading, also known as with very large and
system trading, is done by diverse stock
machines using the programs or portfolios under
algorithms by the set strategies management.
to effectively and efficiently
trade in the market without
human intervention.
 The use of computers enabled brokers to
place larger orders and implement trades
more quickly. In addition, the software
programs developed by banks, brokerages,
and other firms were set to automatically
execute stop-loss orders, selling out positions,
if stocks dropped by a certain percentage.
On Black Monday, the computerized trading
systems created a domino effect, continually
accelerating the pace of selling as the market
dropped, thus causing it to drop even further.
The avalanche of selling that was triggered by
the initial losses resulted in stock prices
dropping even further.
 03. A portfolio insurance
strategy is a dynamic
hedging process that
Portfolio provides the investor
with the potential to

insurance limit downside risk while

allowing participation on
the upside so as to
maximize the terminal
value of a portfolio over
a given investment
horizon.
On Black Monday, the practice triggered the
same domino effect as the computerized
trading programs. As stock prices declined,
large investors sold short more S&P 500
futures contracts. The downward pressure in
the futures market put additional selling
pressure on the stock market. In short, the
stock market dropped, which caused increased
short selling in the futures market, which
caused more investors to sell stocks, which
caused more investors to short sell stock
futures.
 04. Crises, such as a standoff
between Kuwait and Iran,
which threatened to
disrupt oil supplies, also

Mass made investors jittery. The

role of media as an
amplifying factor for these
panic developments has also
come in for criticism.
While there are many
theories that attempt to
explain why the crash
occurred, most agree that
mass panic caused the
crash to escalate.
 Timeline of black monday

1929 1987 2015 2020

Black Monday is the name given to stock market crashes that occurred on four different
Mondays. They were October 28, 1929, October 19, 1987, the market correction of August 24,
2015, and March 9, 2020.
Black monday
1929
The first Black Monday was October
28, 1929. It was the first Monday after
Black Thursday, which kicked off the
stock market crash of 1929. On that
day, stocks fell by 12.82%. That followed
the 11% decline experienced a few days
earlier on Black Thursday. The next
day was Black Tuesday, when the stock
market lost the remaining gains it had
made during the entire year.
The sell-off was not enough to start the Great
Depression of 1929, but it set the stage by shattering
confidence in business investing. As people realized
that banks had used their savings to invest in Wall
Street, they rushed to take out their deposits. Banks
closed over the weekend, and then only gave out 10
cents on the dollar. Many people who had never
invested in the stock market also lost their life
savings.
Black monday
1987
Black Monday is used most often to
refer to the second-largest one-day
percentage drop in stock market
history. It occurred on October 19, 1987,
when the Dow Jones Industrial
Average dropped by 22.61%, falling 508
points to 1,738.74. The S&P 500 fell by
20.4%, dropping 57.64 points to 225.06.
It took two years for the Dow to regain
this loss.
A Securities and Exchange Commission
study concluded that it had been
traders' fears over the impact of
anti-takeover legislation that had been
moving through the U.S. House Ways and
Means Committee. The bill had been first
introduced on Tuesday, October 13, and
passed on October 15. In just those three
days, stock prices fell by more than 10%,
the largest three-day drop in 50 years.
Black monday
2015
On August 24, 2015, the Dow fell by
1,089 points to 15,370.33 as soon as the
market opened, a 16% drop from its
May 19 high of 18,312.39. It quickly
recovered and closed just 533 points
below the open. A 10% drop made it a
market correction, not a crash. It
followed a 531-point drop the previous
Friday.Both were caused by worries
about slower economic growth in
China and uncertainty over its yuan
devaluation.
Black monday
2020
On March 9, 2020, the Dow fell by
2,013.76 points to 23,851.02. It was one of
the Dow’s worst single-day point drops
in history. The percentage drop of
7.79% was one of the worst ever, that is
until Thursday, March 12, 2020. While
not a Monday, March 12, 2020, was the
largest percentage drop in a single
day in the Dow's history since Black
Monday 1987. It dropped 2,352.60
points to 21,200.62—a 9.99% drop.
The
aftermath of
black monday
❖ A key consequence of the Black Monday crash was the development
and implementation of “circuit breakers.” In the aftermath of the 1987
crash, stock exchanges worldwide implemented “circuit breakers” that
temporarily halt trading when major stock indices decline by a specified
percentage.

❖ The purpose of the circuit breaker system is to try to avoid a market

panic where investors just start recklessly selling out all their holdings.
It’s widely believed that such a general panic is to blame for much of the
severity of the Black Monday crash.

❖ The temporary halts in trading that occur under the circuit breaker
system are designed to give investors a space to catch their breath and,
hopefully, take the time to make rational trading decisions, thereby
avoiding a blind panic of stock selling
Reforms to
promote
resilience
“The real drama was not on Black Monday. The real
drama was on Tuesday and several days thereafter
when the fear of credit losses among major market
participants threatened to produce market and
credit gridlock, with all of its implications for
market liquidity and further downward pressure on
equity prices.”
❖ There have been numerous reforms aimed at improving the resilience of the financial
system. A list of some of the most important starts with the enormous increase in capacity
for speedy trade execution.

❖ Next is the implementation of circuit breakers designed to limit disorderly trading and
maintain the integrity of price discovery.

❖ Third is the effort to damp the surge in credit demand arising from price swings – for
example, through cross-margin arrangements that limit margin calls for institutions with
hedged positions across different PCS platforms.

❖ Finally, there is the advent of a financial regulatory framework – fashioned by the

Dodd-Frank Act of 2010 – that explicitly focuses on monitoring and mitigating systemic
risk.

What can we learn from it now?

❖ While high stock valuations can contribute to a fall they are not necessarily the catalyst. As
the table below illustrates, valuations in the US, UK and Europe are higher now than they
were in 1987, yet stock markets continue to hit record highs.
conclusion
An event like Black Monday "That men do not learn very
can be truly jarring. much from the lessons of
However, things do not look history is the most important
that bad at all when looking of all the lessons of history."
at the market returns in
perspective. The Dow Jones
recovered all of its losses in a
relatively short period,
reaching new pre-crisis highs
by the end of 1989.
human emotions play a major role in these kinds of events, and history
teaches us that we humans do not learn as much as we should from the
error of our ways.
When you are investing for the long-term, time is on your side, so you
should capitalize on short-term volatility to make opportunistic
purchases, as opposed to running away and selling at the worst possible
moment.
Bibliography

● https://www.investopedia.com
● https://corporatefinanceinstitute.com/
● ttps://www.thebalancemoney.com
● https://www.schroders.com/
NAME- ANUSHKA SAXENA

COURSE- BSC PHYSICAL

SCIENCE WITH CHEMISTRY

SUBJECT-FINANCE FOR
EVERYONE

ROLL NO- 2022BPS1027