Which financial strategy was widely blamed for amplifying the 1987 Black Monday stock-market crash?

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

Portfolio insurance used computer-driven rules to reduce equity exposure when prices fell. The strategy commonly relied on selling stock-index futures or stocks as markets declined. During an unusually sharp fall, many programs could therefore generate similar sell signals at nearly the same time, increasing downward pressure.

Researchers and regulators have debated how much responsibility portfolio insurance deserves. Other contributors included expensive stocks, uncertainty about interest rates, international trade disputes, and market structure. The strategy may have intensified the crash without being its sole original cause.

The episode influenced later thinking about automated trading, liquidity, and market safeguards. U.S. exchanges subsequently introduced coordinated circuit breakers, which temporarily halt trading after specified market declines. These mechanisms were designed to give participants time to absorb information rather than react in an uninterrupted cascade.