Editing Stock market crash (section)

===October 19, 1987===
{{Main|Black Monday (1987)}}
[[Image:Black Monday Dow Jones.svg|thumb|250px|right|[[Dow Jones Industrial Average|DJIA]] (19 July 1987 through 19 January 1988)]]

The mid-1980s were a time of strong economic optimism. From August 1982 to its peak in August 1987, the [[Dow Jones Industrial Average]] (DJIA) rose from 776 to 2722. The rise in market indices for the 19 largest markets in the world averaged 296% during this period. The average number of shares traded on the [[New York Stock Exchange]] rose from 65 million shares to 181 million shares.<ref>{{cite web | url=http://archive.gao.gov/d30t5/134907.pdf | title=Preliminary Observations on the October 1987 Crash | publisher=[[Government Accountability Office]] | date=January 1988}}</ref>

The crash on October 19, 1987, [[Black Monday (1987)|Black Monday]], was the climactic culmination of a market decline that had begun five days before on October 14. The DJIA fell 3.81% on October 14, followed by another 4.60% drop on Friday, October 16. On Black Monday, the DJIA plummeted 508 points, losing 22.6% of its value in one day. The [[S&P 500 Index]] dropped 20.4%, falling from 282.7 to 225.06. The [[NASDAQ Composite]] lost only 11.3%, not because of restraint on the part of sellers, but because the [[NASDAQ]] [[market system]] failed. Deluged with sell orders, many stocks on the NYSE faced [[trading halt]]s and delays. Of the 2,257 NYSE-listed stocks, there were 195 trading delays and halts during the day.<ref>U.S. GAO op. cit. p. 55</ref> The NASDAQ market fared much worse. Because of its reliance on a "market making" system that allowed [[market maker]]s to withdraw from trading, liquidity in NASDAQ stocks dried up. Trading in many stocks encountered a pathological condition where the [[bid price]] for a stock exceeded the [[ask price]]. These "locked" conditions severely curtailed trading. On October 19, trading in [[Microsoft]] shares on the NASDAQ lasted a total of 54 minutes.

The crash was the greatest single-day loss that Wall Street had ever suffered in continuous trading up to that point. Between the start of trading on October 14 to the close on October 19, the DJIA lost 760 points, a decline of over 31%.

In October 1987, all major world markets crashed or declined substantially. The [[FTSE 100 Index]] lost 10.8% on that Monday and a further 12.2% the following day. The least affected was Austria (a fall of 11.4%) while the most affected was Hong Kong with a drop of 45.8%. Out of 23 major industrial countries, 19 had a decline greater than 20%.<ref>{{Cite journal | arxiv=cond-mat/0301543 | last=Sornette | first=Didier Sornette | author-link=Didier Sornette | title=Critical Market Crashes | journal=Physics Reports | volume=378 | issue=1 | pages=1–98 | year=2003 | doi=10.1016/S0370-1573(02)00634-8 | bibcode=2003PhR...378....1S| s2cid=12847333 }}</ref>

Despite fears of a repeat of the [[Great Depression]], the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday, October 22. It took only two years for the Dow to recover completely; by September 1989, the market had regained all of the value it had lost in the 1987 crash. The DJIA gained 0.6% during calendar year 1987.

No definitive conclusions have been reached on the reasons behind the 1987 Crash. Stocks had been in a multi-year bull run and market [[price–earnings ratio]]s in the U.S. were above the post-war average. The [[S&P 500]] was trading at 23 times earnings, a postwar high and well above the average of 14.5 times earnings.<ref>U.S. GAO op. cit. p. 37</ref> [[Herd behavior]] and psychological [[feedback]] loops play a critical part in all stock market crashes but analysts have also tried to look for external triggering events. Aside from the general worries of stock market overvaluation, blame for the collapse has been apportioned to such factors as [[program trading]], [[dynamic asset allocation|portfolio insurance]] and [[derivative (finance)|derivatives]], and prior news of worsening [[economic indicator]]s (i.e. a large U.S. merchandise [[balance of trade|trade deficit]] and a falling [[United States dollar|U.S. dollar]], which seemed to imply future interest rate hikes).<ref>[http://hnn.us/articles/895.html – ''What caused the Stock Market Crash of 1987?'']</ref>

One of the consequences of the 1987 Crash was the introduction of the circuit breaker or [[trading curb]] on the NYSE. Based upon the idea that a cooling-off period would help dissipate [[panic selling]], these mandatory market shutdowns are triggered whenever a large pre-defined market decline occurs during the [[trading day]].