The 1987 crash’s minimal economic impact hides how traumatic it was for market participants.

Evidence

Because the 1987 crash had remarkably little direct effect on the wider economy, and because many investors lost only what they considered to be “paper” gains (the result of earlier stock price rises), it is hard now to recapture just how traumatic 1987 was to those most directly involved. On October 28, 1929, the worst day of the Great Crash, the Dow fell 12.8% (Brady Commission 1988, p. 1). A collapse in a single day of twice that severity lay almost outside the bounds of the conceivable. Arbitrageur Eric Rosenfeld, then at Salomon Brothers, recalls “sitting at the [trading] desk and wondering about the end of the whole financial All use subject to JSTOR Terms and Conditions Constructing a Market, Performing Theory system” (quoted in Dunbar 2000, p. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 155

Categorization

• XREF: The trauma-induced pricing distortion echoes MacKenzie and Millo’s core contention that the crash remade how market actors priced risk — connects to the performativity framing of the whole article. — connects to: The 1987 crash traumatized U.S. derivatives markets in ways absent elsewhere. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 165; Post-1987 option pricing may be rational given the crash’s trauma, not irrational. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 155

Related

• The 1987 crash traumatized U.S. derivatives markets in ways absent elsewhere. (similarity 0.89)
• Post-1987 option pricing may be rational given the crash’s trauma, not irrational. (similarity 0.87)
• The 1987 crash permanently shifted the S&P options market’s implied distribution toward crash expectations. (similarity 0.82)
• Explaining post-1987 option prices requires crash frequencies roughly four times historical rates (similarity 0.81)
• The persistent option skew reflects rational trauma from 1987, not mispricing (similarity 0.80)
• The 1987 crash taught options markets that unhedged put sales posed systemic risk (similarity 0.80)
• The 1987 crash was a 27-sigma event under the log-normal model. (similarity 0.79)
• The 1987 crash permanently broke Black-Scholes fit with market prices (similarity 0.79)
• Implied volatility spiked from 20 to 170 percent in the 1987 crash. (similarity 0.79)
• The 1987 crash ended the Barnesian performativity of classic option-pricing theory (similarity 0.78)

Broader Connections

• Post-1987 option pricing may be rational given the crash’s trauma, not irrational. #qualifies (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 155