12. Precursor

It came with the suddenness and surprise of a rogue lightning strike. At 11:40 a.m. on Monday, October 19, 1987, a cascade of selling overwhelmed the stock exchanges and specialists, taking the Dow Jones Industrial Average (DJIA) by the end of the day down by 508 points. This arguably was the largest one-day decline since the Great Depression, and the losses were catastrophic. Investors were $1 trillion poorer when the closing bell sounded than they had been when the trading had ended the previous Friday. An 800-point rise in the DJIA during the previous ten months was trimmed by 63.5%.

The market had been falling the previous two weeks as institutions engaged in panic selling (see Figure 12.1). But Wall Street analysts remained ...

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