Stock Terms: What Is Black Monday?

Black Monday refers to the stock market crash of October 19, 1987 (Monday).

Global Day

October 16, 1987 (Friday)

New York's stock market fell more than 91 points (about 5%) on the day after a record high in the summer.

However, due to the time difference, the US east coast time was slower than other major financial markets. When the New York stock market crashed, other markets were closed, and the Toronto stock market, which was even synchronized with the New York stock market, was not affected.

October 19, 1987 (Monday)

On the same day, the Sydney stock market did not start trading.

At 10 a.m. Hongkong time, the Hongkong stock market opened on time, but the Hang Seng index opened in the market, which was affected by New York. The panic dropped 120 points, and the closing market closed down 235 points at noon. The total closing day fell 420.81 points, closing at 3362.39 (over 10%), and the index fell by more than 300 points per month.

Affected by the Hongkong slump, the Asia Pacific region's stock market has been completely washed down, and the effect has been expanding steadily to the European market as time goes by, and finally circled the globe back to New York: the Dow Jones Industrial Average fell by 508 points in October 19th (more than 20%).

Overall decline in October

Down in October 1987:

Hongkong: in the early morning of October 20th, the Hongkong Stock Exchange announced that the stock market and futures market will be suspended for four days from October 20th to October 23rd to clear up a large number of uncompleted pactions.

In October 26th, the Hang Seng Index fell 1120.7 points, or 33.3%, after the re opening of the Hang Seng Index, the largest single day decline in the world.

It fell 45.8% in the whole month.

(a detailed look at the Hongkong stock crash in 1987)

Sydney: down 41.8% in the whole month.

London: down 26.4% per month

New York: 22.6% in the whole month.

The decline in October 19th was the second largest single day drop in the history of the New York stock market (the largest single day decline was December 12, 1914: a single day fall by 24.4%; the largest single day drop was September 17, 2001: a single day fall 684.81 points).

Toronto: down 22.5% in the whole month

Emergency measures and impact

In addition to the Hongkong market, other markets opened during the week opened a trading limit, allowing the computer system to have enough time to clean up the paction. This gives the Federal Reserve and central banks sufficient time to inject large amounts of liquidity into the market, relieve the panic of the market, and avoid constant panic and possible financial collapse.

After that, the financial circles thought that the stock market had eliminated the excessive share price and market value.

Stock market disaster cause

Many people are surprised after the stock market crash. Because there was no news or news of any adverse stock market on that day, there seemed to be no real reason for the decline. Many people suspected that herd mentality, efficient market hypothesis or economic imbalance caused the stock market crash.

In 1986, the US economy has changed from rapid development to slow development.

The "soft landing" that directly led to a slowdown in economic growth.

1987 passed slowly, and the fear of economic recession did not erupt immediately.

The stock market reached its peak in August 1987.

The market continued to decline for several days.

In August, observers warned that technical analysis showed that the market is now in a cycle, but this view is not widely recognized.

After the stock market crash, many people put forward different theories. They thought that the causes of stock crisis included program trading, excessive share price, insufficient liquidity in the market (illiquidity) and herd mentality.

The most popular theory is that the stock market crash is caused by program trading.

Program pactions used computer programs to calculate stock price changes and trading strategies in real time. In the late 1970s, it was becoming popular in Wall Street. Program trading made the bulk of stock and futures trading at the same time buying and selling.

After the stock market crash, many people said that the computer program saw the stock price fall, so they joined the selling of stocks by the mechanism set in the program, which caused a vicious circle, which caused the stock price to accelerate.

Some people think that the stock market boom before the stock market crash is caused by program trading (the same principle of rise and the opposite direction of stock price), and the high stock price caused the stock market crash.

Economist Richard Roll believes that market globalization is the main reason, because program trading is prevalent in the United States, but the Hongkong and Australian stock markets, which did not have much programming, took the lead in October 19th, so that the market globalization caused the large fluctuations in a major stock market to spread the global stock market within a day.

There is a theory that the conflict between monetary policy and economic policy is the reason: at that time, the US authorities wanted to let the US dollar appreciate to suppress inflation, so the tightening of monetary policy was faster than the adjustment of monetary policy in Europe. As a result, the market's confidence in the US dollar pegged to the US dollar decreased, which led the Hongkong stock market to collapse first and then spread to other markets.

Jude Wanniski believes that the Louvre Accord was suspended by the Seven industrialized nations before the stock market crash, making the US dollar no longer stable against the Japanese yen and West Germany's Mark exchange rate, and also the reason why the market lost confidence and withdrew from the stock market.

Another theory is that the British wind disaster in 1987 was one of the causes of the stock market crash. In 1987, the wind disaster occurred in October 16th (Friday before the stock crash). During the period, London, one of the world's financial centers, was severely affected. Many London's brokers and financial industry workers were unable to work on that day. There was no internet paction at that time, resulting in a large number of unliquidated pactions not being delivered before the weekend.