Which 1987 market-crash mechanism involved computer programs selling after prices fell?

Portfolio insurance was the 1987 market-crash mechanism involving computer programs that sold after prices fell.

Portfolio insurance was designed to limit losses in stock portfolios by using stock-index futures and other instruments. As markets declined, the strategy called for increasingly large sales, theoretically offsetting losses in the underlying holdings.

During the October 1987 sell-off, many investors and institutions followed similar rules at the same time. Those trades added selling pressure to already-falling markets. The mechanism was one factor discussed in explanations of the crash, alongside international market weakness, overvaluation, and trading-system stress.

Portfolio insurance did not single-handedly cause the crash, and economists have debated its precise effect. It is also different from ordinary margin lending, in which investors borrow money to buy securities.