Black crash market monday stock
Often we read about stock market crashes that occur across the world, in which people loose huge amount of money and even all the wealth they have. One such stock market crash occurred on 19th October in the year 1987 in United States. This crash was so severe that the DJIA or the Down Jones Industrial Average index was reduced to 22.6% in no time. Since this crash occurred on Monday, it is called as Black Monday stock market crash.
The effects of this stock crash were not limited to United States and even other stock markets across the world also responded to this, loosing huge points in single day. The severity of after effects of black Monday crash can be estimated from the fact that the stock market exchange in Hong Kong was reduced by about 46%, in Australia by 42%, in United Kingdom by 23% and in Canada by 23% by the end of month. There are so many features associated with his black Monday crash that people still remember it.
Why it is still remembered:
There are many reasons for which people still remember the Black Monday crash. First of all, the decline occurred in the stock markets in United State on this day was the largest decline ever, if measured in single day fall percentage terms. Not only in United States, but also across the world, it had been the biggest single day percentage fall in stock market. It is not that stock markets after this did not fall to that extent ever. Of course they did. For example, due to outbreak of First World War, the DJIA fell by about 24.40%, which is higher than the fall occurred on black Monday, but when we see with respect to stock market history all over the world up to 19th October 1987; this was the largest crash ever. The black Monday crash is also called as the Black Swan event, as there is great degree of mystery associated with this stock market crash. This stock market crash also led to the restricted trading of various stock markets across the world.
Causes and effects:
The great crash of stock market on 19th October forced many cross sectionalists and experts to find out the causes of effect. When findings were made, it was found that the black Monday stock market crash did not occur just because of one factor and rather, there were many factors that contributed to the fall of stock market. Most of economists agreed that a loss of 508 points in a single day could not happen due to just one single factor. Though people have been taking out their money or putting it elsewhere due to certain reasons like increase in the interest rate of 30-year U.S Bonds, there were many other reasons also behind the stock market crash. First cause that as ascertained by various experts is the Portfolio Insurance. It is said that the poor choices made with respect to insurance portfolios brought about the stock market crash. Portfolio investment is a type of investment that is used for guarding other losses associated with different types of stocks. The reader should note that investment in the portfolio insurance is considered as one of most risky investments as the professionals related to this field rely heavily on intuition rather than fundamentals and other reliable information. Many people invested in portfolio investment stocks that time and there was heavy selling of related stocks to buy them at cheaper rates. This heavy selling of stocks by portfolio insurance professionals brought about the stock market crash.
Other cause due to which the black Monday stock market crash occurred is the Program Trading. Program trading is a type of stock market trading where the stock is automatically sold when its price level falls below the preset price level. It is amazing to note here that in this type of program, a computer can make 60 transactions within one second. At the time of crash, the stock markets were being controlled by computers more rather than the investors and billions of dollars stock market transactions were being handled by these computers at that time. Since most of companies that provided facilities of stock trading were using these computers, it resulted in joblessness of many people. Also, the exact way of trading by computers was not known to investors at that time and it remained mystery for them. This mystery caused the stock market crash on 19th October. Millions of shares were bought and sold in just two minutes of trade.
Apart from the above, there are also many economists that think that the black Monday stock market crash occurred due to absence of liquidity in the financial markets, over valuation of stocks at the Dow Jones and due to general market psychology. But the experts did not deny the program trading as one of major causes. Program traders would always be blamed for bringing the stock market down and resulting in Black Monday. There are also many economists and experts that believe that there were some macroeconomic causes also that resulted in stock market crash. This includes foreign exchange disputes, interest rates disputes and the inflation fears.
The effects of stock market crash occurred on Black Monday were not as devastating and severe as thought by many experts. There was no depression in the market at all and rather, this stock market crash was seen as one of biggest buying opportunities for the traders and investors. When the interest rates on bonds etc declined in the market, many investors and traders made a come back and started buying shares again. But there were certain precautionary measures that were taken after this crash. First one was the circuit breaker and limits. This was done to prevent the stock market downfall converting into panic. Establishment of these was not aloof from controversies. But circuit breakers provided the most needed formula that helped investors in not loosing their whole money in single day. Other effect of black Monday stock market crash was regarding access to stock markets by the portfolio insurance investors etc.
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