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The paper describes the effects of the 1987 stock market crash and outlines the debate comparing the 1929 and 1987 stock market crashes. The paper then addresses three possible root causes or contributing factors to the crash, specifically, program trading, liquidity issues and U.S. trade and budget deficits.
From the Paper:"The stock market crash was a major systemic shock because not only did the prices of many financial assets tumble, but market functioning was severely impaired (Carlson, 2006). The United States was not the first country that felt it but rather it went into a domino effect from east to west. Since the time zone of the Asian stock market is ahead of the American stock market, the first casualties of the crash was the Hong Kong stock exchange and it spread to the European stock markets until it took its toll on the North American markets. The Japanese stock market got only affected after the American stock market fell. Japan appears to not have participated as others in the downward pressure on other markets, but instead movements in the Japanese market after the crash helped recovery in the US (Yang and Bessler, 2008). At the end of the calamity, the stock market reports showed Hong Kong falling by 46%, Australia by 42%, the United States by 23%, Canada at 22.5% and the hardest hit New Zealand by 60% (Browning, 2007; Carlson, 2006; yang and Bessler, 2008).
"Although there have been debates ever since comparing the 1987 stock market crash to the 1929 crash but the 1929 crash took time to recover while the 1987 did not see a protracted problem because the market rallied immediately in the succeeding weeks and months thereafter. The disaster in 1987 was different than others, because it happened so fast. It was hard to know how far the tentacles were going to reach. After three or four months, it was ancient history."
Sample of Sources Used:
- Browning, E.S. "Exorcising Ghosts of Octobers Past." The Wall Street Journal. 15 Oct. 2007. Dow Jones and Company. 03 Aug. 2009. <http://online.wsj.com/article/SB119239926667758592.html?mod=mkts_main_news_hs_h>.
- Carlson, Mark. A Brief History of the 1987 Stock Market Crash with a Discussion of the Federal Reserve Response. Nov. 2006. Board of Governors of the Federal Reserve. 03 Aug. 2009. <http://www.federalreserve.gov/Pubs/feds/2007/200713/200713pap.pdf>.
- McKeon, Ryan and Jeffry Netter. What Caused the 1987 Stock Market Crash and Lessons for the 2008 Crash? 25 Feb. 2009. Social Science Research Network. 03 Aug. 2009. <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1330220>.
- Yang, Jian and David Bessler. Contagion Around the October 1987 Stock Market Crash. 31 Mar. 2008. Social Science Research Network. 03 Aug. 2009. <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=915809
Cite this Cause and Effect Essay:
The October 1987 Stock Market Crash (2012, January 02) Retrieved May 20, 2013, from http://www.academon.com/cause-and-effect-essay/the-october-1987-stock-market-crash-149827/
"The October 1987 Stock Market Crash" 02 January 2012. Web. 20 May. 2013. <http://www.academon.com/cause-and-effect-essay/the-october-1987-stock-market-crash-149827/>