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

Portfolio insurance was widely blamed for worsening the 1987 stock-market crash. The strategy used computer-driven trading rules to reduce exposure to falling markets, typically by selling stock-index futures as prices declined.

During the sharp fall on October 19, 1987, many institutions using similar risk-management models attempted to sell at the same time. That wave of automated and program-related selling added pressure to already falling prices and contributed to a feedback loop between futures and stock markets.

The Dow Jones Industrial Average dropped 508 points, or 22.6%, on that day, its largest one-day percentage decline. The crash spread internationally, although the causes also included high valuations, trade tensions, interest-rate concerns, and market-structure problems.

Portfolio insurance did not independently cause every part of the crash, and later investigations identified several interacting factors. The episode nevertheless encouraged reforms, including market-wide circuit breakers designed to pause trading during extreme declines.