Black Monday Research Articles

DID BLACK MONDAY HAVE A PERMANENT EFFECT?

AbstractBlack Monday caused an immediate disruption between index futures and stock markets, but it is not clear whether it had any lasting effects. Here we examine links between the markets that are sensitive to the liquidity shortages during Black Monday. By employing a tick‐by‐tick transactions data set of S&P 500 index futures trades and S&P 500 equity index we calculate the spot/futures basis and basis risk, the spot/futures lead/lag relation, and the bid‐ask spread. Evidence suggests that Black Monday had little continuing effect. On high‐volatility days, however, index arbitrage becomes more costly as prices are more sensitive to future trades.

DEREGULATION AND THE VOLATILITY OF UK STOCK PRICES

This paper examines the behaviour of the UK stock market for significant changes in volatility over the four years surrounding Big Bang i.e. 27 October, 1986 when the market was substantially deregulated. The main findings are that after Big Bang but prior to Black Monday, the UK stock market was no more volatile than prior to Big Bang, but that after Black Monday, the UK market was more volatile than prior to Big Bang even after adjusting for increases in global volatility.

The Judicial Response to the New Deal: The U.S. Supreme Court and Economic Regulation, 1934-1936.

The New Deal court the Supreme Court and economic regulation portents for the future - Home Building and Loan Association versus Blaisdel and Neebia versus New York the New Deal in Court 2 - Black Monday the New Deal in Court 3 - agriculture and coal.

Regulating Risky Business: Dilemmas in Security Regulation*

This paper examines the dilemma of regulating the complex and highly differentiated stock market. I argue that regulations, with legitimacy needs for status neutrality, serve mostly to protect investors with limited capacity for managing risk on their own. In competitive markets, players with greater capacity for risk management (e.g., access to market intelligence, sizeable reserves to cushion losses and enhanced technologies for risk assessment) seek out new arrangements for managing risk. These new privatized forms of risk management interact with the markets and market regulation in ways that undermine the regulatory program for those who depend on it most. I illustrate this form of regulatory bias by examining events surrounding Black Monday, the stock market crash of October 1987.

ABSENCE OF 1/f SPECTRA IN DOW JONES DAILY AVERAGE

The power spectrum of the daily Dow Jones industrial average is calculated. It has been shown that the spectrum is P(f) ~1/f1.8, very close to that of the random walk series (1/f2 noise). In contrast to some previous belief, the Dow Jones index as well as other stock prices time series are not 1/f noise. The distribution of the daily change of the Dow Jones industrial average is also calculated. Several fittings of the distribution are carried out (for both the price change and the logarithm of the price change). It has been observed that the occurrence of the big loss on Black Monday (negative change of 508) does not fit the distribution of the smaller price fluctuations (e.g., smaller than 100). This lack of scaling for the frequency of occurrence from the large stock price losses to small price fluctuations can be compared with the much better scaling law in the frequency of occurrence for global earthquakes.

Black Monday in New York, Blue Tuesday in Tokyo: The October 1987 Crash in Japan

This article summarizes the events around the October 19, 1987, Japanese stock market decline. Although Tokyo suffered a it did not experience the same panic as New York, primarily because Tokyo had a more consistent institutional and regulatory structure and could rely on more patient investors. Tokyo can, with certain limitations, be taken as an example of how the Report proposals would work in practice. Since Tokyo suffered a crash, if the Brady proposals are designed to prevent a crash, the Japanese experience proves that this cannot be done. On the other hand, if the Brady proposals are not meant to prevent a crash, but rather to help a quick return to an orderly market, Tokyo can serve as evidence that the Brady proposals are a step in the right direction.

Systematic pricing during the stock crash: Assessing market efficiency

The relative response of stocks of Standard & Poor's 500 firms to the stock market crash on “Black Monday” (October 19, 1987) is examined. A significant correlation is found between the percentage decline in stock prices on Black Monday and the stocks' historically estimated betas. However, the decline in stock prices is found to be less than the decline implied by the stock's betas. Thus, an investor acting on the assumption that the prices would ultimately correct for this deviation would have obtained substantial profits.

Editorial

On Friday, October 16, 1987, the Dow Jones industrial average fell a record 108 points for a single day. Only three days later, on "Black Monday," the Dow fell an incredible 508 points, followed by yet another huge loss of 157 points just one week later, on Monday, October 26, 1987. What was going on? The event that was alleged to have triggered all of this downside activity was "the report of a larger-than-expected trade deficit." However, certain usually reliable but unnamed sources suggested that there may have been a connection between these record-setting plunges and the optics community; after all, they occurred on the Friday prior to, during the week of, and on the Monday following the annual meeting of the Optical Society of America. This suggestion was summarily dismissed, because there simply couldn't be any way for a meeting of a few thousand optical scientists and engineers to influence the stock market. Impossible! Ridiculous! No way!

Black Monday and the future of financial markets

Black Monday and the future of financial markets

Fundamentals, Bubbles, Trading Strategies: Are they the Causes of Black Monday?

Fundamentals, Bubbles, Trading Strategies: Are they the Causes of Black Monday?

Teamwork in the City

The City is currently going through a number of changes, the heavily publicised ones such as the Big Bang, Black Monday and the technological revolution, and perhaps more quietly, the increasing acceptance that the development of effective managerial competence is a vital requirement for success. This article provides a practical description of a management development intervention and shows what can be done in a short time to improve teamwork.

Black Monday: the catastrophe of October 19, 1987. . .and beyond

Black Monday: the catastrophe of October 19, 1987. . .and beyond

Computer Security: Who’s Minding the Store?

Trojan Horse, Logic Bomb, Salami Technique, Superzapping, and Asynchronous Attack are: A. Names of this year's top five rock groups B. Impressive vernacular of Yuppies at their afternoon happy hour C. Informal Pentagon designations to categorize foreign military installations D. Labels coined by Wall Streeters in identifying causes of Black Monday E. Jargon evolving from the numerous automated computer crimes committed since the onset of the Age of Information If A, B, C, or D is your choice, this article may provide substantial insight into the management and security of computerized information systems. Recent studies by the American Bar Association,1 the American Institute of Certified Public Accountants,2 the American Bankers Association,3 the Inspector General of the U.S. Department of Health and Human Services,4 and Britain's Local Government Inspectorate5 acknowledge the rapid growth and profitability of computer crimes. Theft by computer is more lucrative, is much safer, and carries less punishment than armed bank robbery. The American Bar Association reported an estimated average annual loss from $2 million to $10 million by each computer abuse.6 Sixteen percent of the 199 fraud cases identified by the AICPA exceeded $100,000.7 Of the 67 computer fraud cases involving financial loss examined in the Local Government Inspectorate study, 22% exceeded $100,000.8 Twelve percent of the 65 cases reported in the Inspector General's report exceeded this amount.9The ABA survey of credit card fraud reported an increase from $5.5 to $29.2 million (430% increase) in the total dollar value of bank card fraud losses in a 12-month period.10 To compound the seriousness of the situation, one source predicts that computer crime will increase more rapidly than controls that detect and thwart the crimes.1 With the increase of computer literacy, this alarming trend has the potential for creating serious management issues for all organizations.

STOCK MARKET: Chemicals outperform other issues

Shortages of basic chemicals such as ethylene, styrene, and caustic soda, stable or lower feedstock prices, and a weak U.S. dollar that has helped increase overseas demand for U.S. chemicals have recently helped increase many chemical companies' sales and profits, and to some extent their stock prices. Chemical stock prices, as measured by the C&EN stock price index, have advanced more than 24% above closing prices a year ago on Black Monday, Oct. 19, 1987. On that day, the market crashed and the Dow Jones Industrial Average declined 508 points, almost 23%. The situation looked baleful then, when the C&EN index dropped 107 points, or 20% on the day, to 423 (1957 = 100). But as of Oct. 7 this year, this index has recovered to within a few points of its close on the Friday before Black Monday. The chemical index, however, is currently 20% below the 1987 high of 630, attained on Oct. ...

The Financial Crises of the 1930s and the 1980s: Similarities and Differences

This paper describes the course of the 1929 depression that spread from the stock market to c ommodity market. The boom of the 1970s and the stock market bubble fr om August 1982 to August 1987 are traced, noting especially parallels to 1929 in financial weakness. A postscript after Black Monday shows how that fits into the crash of October 1929, and suggests that comm odities are not likely to be infected by the liquidity squeeze, but t hat potential dangers lie in wait in the United States in the high le vels of third world, mortgage, household, junk bond, and government d ebt. Copyright 1988 by WWZ and Helbing & Lichtenhahn Verlag AG

Roundtable: Physics Research in Industry

Three weeks before the stock market crash on Black Monday, 19 October, PHYSICS TODAY conducted a roundtable discussion on the current state of US industrial research. The eight participants who gathered at the Washington office of the American Institute of Physics on 29 September included the heads of research at four prominent manufacturing companies, a former research minister of France, the deputy director of a national laboratory that often collaborates with major corporations, an administrator at a leading technical university, and the only member of Congress who holds a DSc. Questions were posed by PHYSICS TODAY editors. As the following excerpts from the two‐hour discussion reveal, the participants spoke candidly about problems and practices, ranging over such matters as technological competitiveness, research management, physics education, technology transfer from industrial and national laboratories, and government R&D policies.

After Black Monday

After Black Monday

" Black Monday's" Effect on Endowments

" Black Monday's" Effect on Endowments

Computers Amplify Black Monday

Computers Amplify Black Monday

Black Monday's Children: A Study of the Effects of School Desegregation Self-Concepts of Southern Children, by Gloria J. Powell, M.D. New York: Appleton-Century-Crofts, 1973, 334 pp., $16.50

This book lends itself to a diversity of interpretations—not because it is full of contradictions or inconsistencies, but because the author, a black-child psychiatrist, has chosen to approach children primarily through the medium of psychological testing rather than direct and sustained clinical observation. There are advantages to her approach, too: a relatively large number of boys and girls can be worked with, and at least something of what goes on in their minds obtained.