Which trading strategy was widely blamed for intensifying the 1987 global stock-market crash?

Portfolio insurance was widely blamed for intensifying the 1987 global stock-market crash. The strategy used computer-based models to sell equity futures as markets fell, seeking to reduce portfolio losses.

As prices declined on October 19, 1987, large amounts of automated selling entered futures and cash markets. This feedback loop was associated with worsening liquidity and accelerating price declines. The Dow Jones Industrial Average lost 22.6% in its largest one-day percentage fall.

Portfolio insurance was not the only explanation. Researchers and regulators also examined market linkages, investor psychology, valuation concerns, and trading-system capacity. The crash led to important reforms, including circuit breakers designed to pause trading during extreme moves. Portfolio insurance should not be confused with ordinary insurance products or passive index investing; it was a dynamic hedging approach based on market movements.