The 1987 crash made its own portfolio-insurance inventor fear he caused a world crisis

Evidence

Fearing that the crash might partly have been caused by the widespread adoption of the “portfolio insurance” technique (the creation of synthetic put options) he and his Berkeley colleague, Hayne Leland, had developed, Mark Rubinstein entered two weeks of what he now regards as clinical depression: he could not rid himself of the fear that the weakening of the American markets could lead the Soviet Union to a Cuba-style challenge and that nuclear war might ensue (Rubinstein interview). — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 158

Categorization

• XREF: connects to: Portfolio insurance’s inventors concede it helped cause the 1987 crash — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 865; Widespread crash fears created a self-fulfilling prophecy in October 1987 — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 859; The 1987 crash stemmed from ignorance of mechanical selling, not portfolio insurance itself. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 871 (+1 more)

Related

• Portfolio insurance’s inventors concede it helped cause the 1987 crash (similarity 0.87)
• The 1987 crash stemmed from ignorance of mechanical selling, not portfolio insurance itself. (similarity 0.85)
• Widespread crash fears created a self-fulfilling prophecy in October 1987 (similarity 0.84)
• Portfolio insurance covered 50 billion dollars of stock by autumn 1987. (similarity 0.83)
• Observed portfolio-hedging sales would have caused under one percent of the 1987 crash. (similarity 0.83)
• Portfolio insurance collapsed after 1987 partly because it became socially tainted (similarity 0.82)
• Portfolio insurance largely protected client floors even during the 1987 crash (similarity 0.81)
• Rumors during the 1987 crash exaggerated portfolio insurance trade size three to fourfold (similarity 0.80)
• Portfolio insurance forced clients to miss the entire market rebound after the crash (similarity 0.79)
• The log-normal assumption may have been self-undermining through portfolio insurance. (similarity 0.79)
• All major world stock markets crashed despite portfolio insurance being US-centric. (similarity 0.79)
• Portfolio insurers sold $6 billion of stocks and index futures on October 19. (similarity 0.79)
• A crash explanation’s formal model does not make it more testable (similarity 0.78)
• Portfolio insurance’s real risk was internal self-impact, not external shocks. (similarity 0.78)

Broader Connections

• Portfolio insurance’s inventors concede it helped cause the 1987 crash #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 865
• The 1987 crash stemmed from ignorance of mechanical selling, not portfolio insurance itself. #qualifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 871
• Widespread crash fears created a self-fulfilling prophecy in October 1987 #qualifies (0.70) — Donald MacKenzie, An Engine, Not a Camera, 859
• Portfolio insurance collapsed after 1987 partly because it became socially tainted #expands (0.70) — Donald MacKenzie, An Engine, Not a Camera, 889