What was the main trading strategy blamed for intensifying the 1987 Black Monday sell-off?

Portfolio insurance was the main trading strategy blamed for intensifying the 1987 Black Monday sell-off.

Portfolio insurance used computer-based rules to reduce exposure as prices fell, often by selling stock-index futures. The strategy was designed to limit losses during a decline, but many programs could generate similar sell orders at the same time. That created a feedback loop in an already nervous market.

Researchers and regulators did not identify one simple cause for the crash. Other factors included high valuations, rising interest rates, trade tensions, and a market structure in which trading occurred across connected cash and futures markets. The interaction of these pressures made selling unusually rapid.

Portfolio insurance did not cause every part of the crash, and it was not the same as ordinary insurance against a company failure. The episode encouraged reforms in market coordination and led exchanges and regulators to develop circuit breakers. Those mechanisms can pause trading when prices move beyond specified thresholds.