The Culprits Behind the Crash?

Blamed for Black Monday, portfolio insurers fall on hard times

It was billed as the high-tech investment strategy of the decade. Using computerized trading in esoteric investment vehicles like stock-index futures, the technique promised managers of pension funds or any other kind of investment pool the Wall Street equivalent of the Holy Grail: "insurance" for their portfolios against future downturns in the stock market. As the Dow Jones industrial average kept climbing to new highs through much of 1987, the value of the funds covered by so-called portfolio insurance swelled to an estimated $80 billion.

Then came Black Monday. When the market crashed on Oct. 19, so did the reputation of...

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