Which 1987 trading practice was widely blamed for amplifying the Black Monday stock-market crash?

Portfolio insurance was widely blamed for amplifying the Black Monday stock-market crash in 1987.

Portfolio insurance was an investment strategy intended to limit losses by selling stock-index futures as markets declined. In theory, those futures sales could offset falling equity holdings. During the rapid October 1987 sell-off, however, many investors following similar rules attempted to sell at the same time. That added pressure to already falling markets and may have created a feedback loop.

The strategy was not the only explanation. Rising valuations, worries about interest rates, international trade imbalances, currency tensions and market liquidity all formed part of the background. Later studies have therefore treated portfolio insurance as an amplifier of the crash rather than a complete explanation for why it began.

The episode influenced financial regulation and market design. Exchanges developed circuit breakers and other coordination mechanisms to slow trading during exceptional volatility. Portfolio insurance should not be confused with deposit insurance, which protects eligible bank deposits, or with ordinary diversification, which spreads investments across assets.