What trading mechanism was widely blamed for intensifying selling during the 1987 Black Monday crash?

Portfolio insurance was widely blamed for intensifying selling during the 1987 Black Monday crash.

Portfolio insurance used rules-based trading strategies to reduce exposure as markets declined. When prices fell, some programs automatically sold stock-index futures or other assets. The resulting sales could push prices lower, causing further signals to sell and creating a feedback loop.

Researchers and regulators did not conclude that portfolio insurance alone caused Black Monday. Market structure, investor psychology, valuation concerns, interest rates, trade tensions, and liquidity problems also mattered. The mechanism is best understood as a possible amplifier of an already unstable market.

The episode helped change market regulation. U.S. exchanges later introduced circuit breakers, which temporarily halt trading after specified market declines. These pauses are intended to give investors time to assess information rather than forcing decisions during a disorderly cascade.