Search

The 1987 stock market crash generated renewed interest in stock price volatility. Particular focus was given to 'noise,' where volatility is not conditioned by fundamental value changes. Minimal evidence has been gathered to support circuit breaker mechanisms as tools to prevent another crash. Research in Korea's securities markets on price limit portfolios showed that such limits decreased stock price volatility.

The impact of international capital entry barriers on stock price movements were analyzed by examining the short- and long-run effects of the Stock Market Crash of 1987. The major stock markets studied were the Japan, Germany, the UK and the US markets, and developing markets in Latin America and Asia. It was suggested that in markets with high entry barriers, transaction volatility increases with no price spillovers. This may indicate that the high transaction cost of high entry barriers is a deterrent to significant price signals.

Following the stock market crash on 19 October 1987, the securities industry contracted nation-wide. In New York City, over 10 800 jobs were lost within eight months of the crash. Bonuses, a major component of salaries in the industry, also declined. The short-run induced effects on regional output, employment and personal and business income were computed using an Input-Output model of metropolitan New York. Employment effects were decomposed by occupation, industry and county of residence. Output and total employment fell by $1.8bn and 28 860 jobs, respectively. The incidence of increased unemployment was borne by clerical workers in the securities industry (primarily through the direct effects) and by service and unskilled sales staff in wholesale and retail trade (through the indirect and induced effects.) Manhattan and the adjacent inner ring counties were most affected.

This article summarizes the events around the October 19, 1987, Japanese stock market decline. Although Tokyo suffered a 'crash,' it did not experience the same 'panic' as New York, primarily because Tokyo had a more consistent institutional regulatory structure and could rely on more patient investors. Tokyo can, with certain limitations, be taken as an example of how the the 'Brady 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 q quick return to an 'orderly market,' Tokyo can serve as evidence that the Brady proposals are a step in the right direction. (Reprinted by permission of the publisher.)

Financial Markets and Monetary Economics The October 1987 stock market crash, more than any other single event within recent years, has stimulated an extraordinary profusion of research on securities pricing [...]

The deregulation of financial markets has led to severe challenges for bank management and banking strategy. Investment banking is a sector that has experienced important and well-publicized changes. London's celebrated 'Big Bang' helped to stimulate new banking strategies that were characterized by the formation of so-called 'bank financial conglomerates'. The October 1987 stock market crash, however, has precipitated strategic and organizational crises for many of these banks active in securities business and capital market products. This article re-examines investment banking strategies in London and some of the lessons associated with the crash experiences. (Reprinted by permission of the publisher.)

Many financial analysts believe that while some of the conditions present during the stock market crash of Oct 19, 1987 exist in the 1997 bull market, such as the overvaluation of many stocks, others do not. High interest rates and inflation, for example, may have contributed to the 1987 crash, but they are absent in 1997. Some experts believe that the current bull market could persist indefinitely, as long as the world economy continues to expand. Safety mechanisms adopted by stock and commodity exchanges since 1987 should buffer the market from a devastating crash, although less severe drops will probably occur.

College fund raisers believe that a stock market crash similar to the one experienced on Oct 19, 1987 would have only a temporary effect on donors. Based on their fund raising experiences in 1987/1988 and 1988/1989, they found that most fund raising programs were rebounding within a year of the crash. Fund raising consultants recommend that if a market crash does occur, most colleges should delay planned campaigns that were not yet publicly announced, and give donors a chance to recover confidence in their financial security. Colleges already involved in major campaigns should be sensitive to donor needs.