Which 1987 market-crash mechanism was designed to sell assets automatically as prices fell?

Portfolio insurance was the 1987 market-crash mechanism designed to sell assets automatically as prices fell.

Portfolio insurance used rules-based trading, often involving stock-index futures, to reduce a portfolio’s exposure after market declines. The strategy was intended to limit losses without requiring a manager to make a fresh judgment during every market move. In normal conditions, it could appear orderly and systematic.

During the October 1987 collapse, however, many investors and institutions followed similar signals at the same time. Falling prices prompted more selling, which could push prices lower and trigger still more programmed orders. Economists continue to debate how much portfolio insurance caused versus amplified the crash, but it was a prominent feature of contemporary explanations.

Portfolio insurance did not mean that every investor owned an actual insurance policy. It was a trading strategy. After Black Monday, regulators and exchanges introduced circuit breakers and other safeguards to slow trading during exceptionally rapid declines.