Portfolio insurance largely protected client floors even during the 1987 crash

Evidence

Portfolio insurers performed quite credibly in protecting their clients’ “floors” in the exceptional conditions of October 19 and 20. Although slow futures sales meant LOR was “underhedged by 50 percent” on October 19, it “still met its floor for 60 percent of its clients” with the rest of its accounts suffering “floor violations that ranged between 5 and 7 percent” (Voorhees 1988, p. 57). — Donald MacKenzie, An Engine, Not a Camera, 841

Categorization

• XREF: connects to: Portfolio insurance covered 50 billion dollars of stock by autumn 1987. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 804; Portfolio insurance forced clients to miss the entire market rebound after the crash — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 843; Portfolio insurance’s inventors concede it helped cause the 1987 crash — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 865 (+2 more)

Broader Connections

• The 1987 crash stemmed from ignorance of mechanical selling, not portfolio insurance itself. #qualifies (0.82) — Donald MacKenzie, An Engine, Not a Camera, 871
• Portfolio insurance’s inventors concede it helped cause the 1987 crash #complicates (0.80) — Donald MacKenzie, An Engine, Not a Camera, 865
• Portfolio insurance designed to limit losses can amplify market volatility. #complicates (0.75) — Shapiro, Susan P., The Social Control of Impersonal Trust, 144