In finance , Black Monday refers to Monday, October 19, , when stock markets around the world crashed , shedding a huge value in a very short time.
The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average DJIA fell exactly points to 1, The terms Black Monday and Black Tuesday are also respectively applied to October 28 and October 29, , which occurred after Black Thursday on October 24, which started the Stock Market Crash of In late and early , the United States economy began shifting from a rapidly growing recovery from the early s recession to a slower growing expansion, which resulted in a brief " soft landing " period as the economy slowed and inflation dropped.
On October 14, the DJIA dropped On Thursday, October 15, , Iran hit the American-owned and Liberian -flagged supertanker , the Sungari , with a Silkworm missile off Kuwait's main Mina Al Ahmadi oil port. The next morning, Iran hit another ship, the U. On Friday, October 16, when all the markets in London were unexpectedly closed due to the Great Storm of , the DJIA fell Then- Treasury Secretary James Baker stated concerns about the falling prices.
The crash began in Far Eastern markets the morning of October 19, but accelerated in London time—very largely because London had closed early on October 16 due to the storm—by 9. Later that morning, two U. By the end of October, stock markets in Hong Kong, Australia, Spain, the United Kingdom, the United States and Canada had fallen The Black Monday decline was—and currently remains—the largest one-day percentage decline in the DJIA.
Saturday, December 12, , is sometimes erroneously cited as the largest one-day percentage decline of the DJIA. In reality, the ostensible decline of Following the stock market crash, a group of 33 eminent economists from various nations met in Washington, D.
This, along with the abrupt demise of the leveraged buyout craze which led to the Friday the 13th mini-crash brought a five-year depression late that year.
Possible causes for the decline included program trading , overvaluation , illiquidity and market psychology. A popular explanation for the crash was selling by program traders, most notably as a reaction to the computerized selling required by portfolio insurance hedges.
Common strategies implemented by program trading involve an attempt to engage in arbitrage and portfolio insurance strategies.
As computer technology became more available, the use of program trading grew dramatically within Wall Street firms. After the crash, many blamed program trading strategies for blindly selling stocks as markets fell, exacerbating the decline. Some economists theorized the speculative boom leading up to October was caused by program trading, and that the crash was merely a return to normalcy. Either way, program trading ended up taking the majority of the blame in the public eye for the stock market crash.
Markey , who had been warning about the possibility of a crash, stated that "Program trading was the principal cause. New York University 's Richard Sylla divides the causes into macroeconomic and internal reasons.
Macroeconomic causes included international disputes about foreign exchange and interest rates, and fears about inflation.
The internal reasons included innovations with index futures and portfolio insurance. I've seen accounts that maybe roughly half the trading on that day was a small number of institutions with portfolio insurance.
Big guys were dumping their stock. Also, the futures market in Chicago was even lower than the stock market, and people tried to arbitrage that. The proper strategy was to buy futures in Chicago and sell in the New York cash market. After Black Monday, regulators overhauled trade-clearing protocols to bring uniformity to all prominent market products. They also developed new rules, known as " trading curbs " or colloquially as circuit breakers, allowing exchanges to temporarily halt trading in instances of exceptionally large price declines in some indexes; for instance, the DJIA.
From Wikipedia, the free encyclopedia. The Wall Street Journal. Archived from the original on Stock exchange, New Zealand Official Yearbook Retrieved 8 December Bulls, Bears and Elephants: A History of the New Zealand Stock Exchange. Retrieved 18 July The New York Times.
A Demon Of Our Own Design. Concise Encyclopedia of Economics 1st ed.
Stock Market Crash of - Facts & Summary - edegawiwajy.web.fc2.com
Library of Economics and Liberty. The precipitous price declines occurred when the normal index-arbitrage relation was most disrupted, not when index arbitrage was prevalent. Remembering the Crash of A Discussion With Richard Sylla". The Wall Street Journal Online. The Stock Market Crash of ".
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