17/10/17

Black Monday 2.0: The Next Machine-Driven Meltdown



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Black Monday 2.0: The Next Machine-Driven Meltdown
// Zero Hedge

Authord by Ben Levisohn via Barrons,

In the rise of computer-driven trading, some hear echoes of the stock market's 1987 crash. Beware the feedback loop...

Black Monday. Although the event to which those two words refer occurred 30 years ago, they still carry the weight of that day—Oct. 19, 1987—when the Dow Jones Industrial Average shed nearly a quarter of its value in wave after wave of selling.

No one in living memory had seen anything like it, at least not in the U.S., and in the postmortems conducted to understand just how the Dow managed to drop 508 points in one day, experts found a culprit: so-called portfolio insurance, a quantitative tool designed to use futures contracts to protect against market losses. Instead, it created a poisonous feedback loop, as automated selling begat more of the same.

Since that day, markets have rallied and ....

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