Unknown size of scheduled portfolio sales, not the sales themselves, caused market shock.

Evidence

If Gennotte and Leland’s account of the crash were correct, disseminating knowledge of portfolio insurers’ sales in advance would greatly reduce the risk of those sales destabilizing the market. With 7c(p0) not known, large sales produced “shock … nobody knowing how big … how much more would be coming.” In contrast, with Tc(p0) known the market could “prepare itself” for portfolio insurers’ informationless trades and “clear … just fine” (O’Brien interview; see also Grossman 1988, pp. 278-279). — Donald MacKenzie, An Engine, Not a Camera, 883

Categorization

• XREF: This is the informational/asymmetric-knowledge account of the 1987 crash—connects to Gennotte & Leland 1990 cited earlier in the book and to the broader thesis that model-generated trades move prices only through information gaps. — connects to: Unknown mechanical selling amplifies price falls by triggering downward expectation revisions. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 869; Portfolio insurance sells more stock as price falls, creating mechanical downward supply. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 867; Market beliefs about a fund’s portfolio can be wrong yet still drive fire-sale pricing. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1061

Broader Connections

• Market beliefs about a fund’s portfolio can be wrong yet still drive fire-sale pricing. #complicates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1061