Black Monday

This report looks back on the stock market crash of 1987 or "Black Monday", globally and from the point of view of United States’ market. Percentage changes in markets around the world presented in the report denote huge losses and a global panic disorder. However, in this report, we will focus only on what happened in the United States’ stock market - review the timeline, discover the main causes and finally summarize the lessons we should learn from this event.

In the first two parts of our report, we will generally touch the global losses in October caused by Black Monday and turn to go through the detailed timeline of the United States’ stock market crash. We will highlight one turning point and several triggering events as critical environmental factors contributing to the development of the market crash.

In the second part, we will further discuss fours specific causes of this market crash. First, the end of the prior overvaluation is thought to lead to the earliest downward pressure on the stock prices. Then we will explain how the two program trading strategies - portfolio insurance strategy and index arbitrage strategy work togather to realise and excerbate the expectation of the stock price decline. In addition, lack of investor confidence and market liquidity will be discussed to promote the understanding of the crash from the angles of the investors and the market system.

Next, the report will put forward some reflection and lessons after analysis of the causes. Most importantly, we should improve the delivery of the timely information and be sure to maintain the investor confidence. And we should pay close attention to the potential risk behind the portfolio insurance and rapidly rising prices. Lastly, illiquidity is harmful during a panic selling and can be remitted by rational investors who are hungry when others are panic.

In the last part, we will offer suggested responses to such crisis for financial