What computer-based trading strategy was widely blamed for intensifying the Black Monday crash of 1987?

The computer-based trading strategy widely blamed for intensifying the Black Monday crash of 1987 was portfolio insurance.

Portfolio insurance was designed to limit losses by selling stock-index futures as markets declined. The strategy did not literally insure a portfolio through an ordinary insurance contract; instead, it used rules and derivatives to reduce exposure after falling prices.

When many institutions followed similar rules, their selling could occur at the same time. Falling prices generated more sell signals, and the resulting orders added pressure to markets already suffering from fear, uncertainty, and limited liquidity. This feedback loop became one of the main explanations for the speed of the 1987 collapse.

Economists and regulators did not treat portfolio insurance as the sole cause. Concerns about interest rates, exchange rates, valuation, and market structure also mattered. The episode helped focus attention on the risks created when many investors use similar automated strategies in stressed conditions.