Which computer-driven trading strategy was blamed for worsening the 1987 stock-market crash?

Portfolio insurance was the computer-driven trading strategy blamed for worsening the 1987 stock-market crash.

Portfolio insurance was designed to limit losses by selling stock-index futures as markets declined. The strategy sought to create a synthetic protective put, allowing investors to reduce equity exposure without immediately selling every share they owned.

During the rapid fall on October 19, 1987, many systems generated additional sell orders as prices dropped. Those orders added pressure to already weak markets and helped create a feedback loop: falling prices triggered selling, and selling pushed prices lower. Researchers and regulators later debated how much responsibility belonged to portfolio insurance compared with valuation concerns, interest-rate fears, and market structure.

The strategy did not alone explain the crash. The event also exposed weaknesses in coordination between stock and futures markets. In response, U.S. exchanges introduced coordinated circuit breakers and other safeguards intended to slow disorderly trading rather than guarantee rising prices.