Since institutional investors typically hedge their risks by using asset liability management and derivatives instruments against market risk, it is estimated that institutional investors in a representative stock market such as the London Stock Exchange lost only 10% of the value of their assets in the 1987 crash. In the absence of such hedging the effect of the crash and the resultant liquidity crunch would have been far greater. (Markose, Sheri, n.d.)
Causes of the Crash number of possible reasons for the Crash have put forward by the experts, some of which are discussed below:
Program trading (also called computer trading) involves index arbitrage - which takes advantage of price discrepancies between indexes of stocks and futures contracts by using sophisticated computer models to hedge positions. Program traders or an arbitrageur simultaneously buys a stock in one market and offsets that purchase by selling it in a futures...
[ View Full Essay]