Which 1987 financial innovation was blamed for amplifying selling during Black Monday?

Portfolio insurance was the 1987 financial innovation blamed for amplifying selling during Black Monday.

Portfolio insurance used computer-driven trading rules to reduce exposure as stock prices fell. The strategy commonly involved selling stock-index futures or other instruments when markets declined. During the rapid fall on October 19, 1987, many similar systems generated selling signals at roughly the same time.

Economists and regulators concluded that this feedback could intensify a falling market, especially when trading and liquidity became strained. Portfolio insurance was not the sole cause of Black Monday: high valuations, economic concerns and international market links also mattered.

Portfolio insurance should not be confused with ordinary insurance or with a guarantee against investment losses. It was a risk-management strategy designed to limit downside, but its coordinated use could produce the opposite short-term effect by adding supply during a panic. The crash led to reforms including market-wide circuit breakers.