Hoje no NY Times, não deu para botas as gráficas que são bastante ilustrativas. A nota original
neste enlaceA Stock Market Panic Like 1987 Could Happen Again
On Oct. 19, 1987, the stock market fell more than 20 percent. It would be comforting
to believe a crash couldn’t recur. But we are still at risk.
Economic View
By ROBERT J. SHILLER OCT. 19, 2017
Oct. 19, 1987, was one of the worst days in stock market history. Thirty years later,
it would be comforting to believe it couldn’t happen again.
Yet that’s true only in the narrowest sense: Regulatory and technological change has
made an exact repeat of that terrible day impossible. We are still at risk, however,
because fundamentally, that market crash was a mass stampede set off through viral
contagion.
That kind of panic can certainly happen again.
I base this sobering conclusion on my own research. (I won a Nobel Memorial Prize in
Economic Sciences in 2013, partly for my work on the market impact of social
psychology.) I sent out thousands of questionnaires to investors within four days of
the 1987 crash, motivated by the belief that we will never understand such events
unless we ask people for the reasons for their actions, and for the thoughts and
emotions associated with them.
From this perspective, I believe a rough analogy for that 1987 market collapse can be
found in another event — the panic of Aug. 28, 2016, at Los Angeles International
Airport, when people believed erroneously that they were in grave danger. False
reports of gunfire at the airport — in an era in which shootings in large crowds had
already occurred — set some people running for the exits. Once the panic began, others
ran, too.
That is essentially what I found to have happened 30 years ago in the stock market. By
late in the afternoon of Oct. 19, the momentous nature of that day was already clear:
The stock market had fallen more than 20 percent. It was the biggest one-day drop, in
percentage terms, in the annals of the modern American market.
I realized at once that this was a once-in-a lifetime research opportunity. So I
worked late that night and the next, designing a questionnaire that would reveal
investors’ true thinking.
Those were the days before widespread use of the internet, so I relied on paper and
ink and old-fashioned snail mail. Within four days, I had mailed out 3,250
questionnaires to a broad range of individual and institutional investors. The
response rate was 33 percent, and the survey provided a wealth of information.
My findings focused on psychological data and differed sharply from those of the
official explanations embodied in the report of the Brady Commission — the task force
set up by President Ronald Reagan and chaired by Nicholas F. Brady, who would go on to
become Treasury secretary.
The commission pinned the crash on causes like the high merchandise trade deficit of
that era, and on a tax proposal that might have made some corporate takeovers less
likely.
The report went on to say that the “initial decline ignited mechanical,
price-insensitive selling by a number of institutions employing portfolio insurance
strategies and a small number of mutual fund groups reacting to redemptions.”
Portfolio insurance, invented in the 1970s by Hayne Leland and Mark Rubinstein, two
economists from the University of California, Berkeley, is a phrase we don’t hear much
anymore, but it received a lot of the blame for Oct. 19, 1987.
Portfolio insurance was often described as a form of program trading: It would cause
the automatic selling of stock futures when prices fell and, indirectly, set off the
selling of stocks themselves. That would protect the seller but exacerbate the price
decline.
The Brady Commission found that portfolio insurance accounted for substantial selling
on Oct. 19, but the commission could not know how much of this selling would have
happened in a different form if portfolio insurance had never been invented.
In fact, portfolio insurance was just a repackaged version of the age-old practice of
selling when the market started to fall. With hindsight, it’s clear that it was
neither a breakthrough discovery nor the main cause of the decline.
Ultimately, I believe we need to focus on the people who adopted the technology and
who really drove prices down, not on the computers.
Portfolio insurance had a major role in another sense, though: A narrative spread
before Oct. 19 that it was dangerous, and fear of portfolio insurance may have been
more important than the program trading itself.
On Oct. 12, for instance, The Wall Street Journal said portfolio insurance could start
a “huge slide in stock prices that feeds on itself” and could “put the market into a
tailspin.” And on Saturday, Oct. 17, two days before the crash, The New York Times
said portfolio insurance could push “slides into scary falls.” Such stories may have
inclined many investors to think that other investors would sell if the market started
to head down, encouraging a cascade.
In reality, my own survey showed, traditional stop-loss orders actually were reported
to have been used by twice as many institutional investors as the more trendy
portfolio insurance.
In that survey, I asked respondents to evaluate a list of news articles that appeared
in the days before the market collapse, and to add articles that were on their minds
on that day.
I asked how important these were to “you personally,” as opposed to “how others
thought about them.” What is fascinating about their answers is what was missing from
them: Nothing about market fundamentals stood out as a justification for widespread
selling or for staying out of the market instead of buying on the dip. (Such purchases
would have bolstered share prices.)
Furthermore, individual assessments of news articles bore little relation to whether
people bought or sold stocks that day.
Instead, it appears that a powerful narrative of impending market decline was already
embedded in many minds. Stock prices had dropped in the preceding week. And on the
morning of Oct. 19, a graphic in The Wall Street Journal explicitly compared prices
from 1922 through 1929 with those from 1980 through 1987.
The declines that had already occurred in October 1987 looked a lot like those that
had occurred just before the October 1929 stock market crash. That graphic in the
leading financial paper, along with an article that accompanied it, raised the thought
that today, yes, this very day could be the beginning of the end for the stock market.
It was one factor that contributed to a shift in mass psychology. As I’ve said in a
previous column, markets move when other investors believe they know what other
investors are thinking.
In short, my survey indicated that Oct. 19, 1987, was a climax of disturbing
narratives. It became a day of fast reactions amid a mood of extreme crisis in which
it seemed that no one knew what was going on and that you had to trust your own gut
feelings.
Given the state of communications then, it is amazing how quickly the panic spread. As
my respondents told me on their questionnaires, most people learned of the market
plunge through direct word of mouth.
I first heard that the market was plummeting while lecturing to my morning class at
Yale. A student in the back of the room was listening to a miniature transistor radio
with an earphone, and interrupted me to tell us all about the market.
Right after class, I walked to my broker’s office at Merrill Lynch in downtown New
Haven, to assess the mood there. My broker appeared harassed and busy, and had time
enough only to say, “Don’t worry!”
He was right for long-term investors: The market began rising later that week, and in
retrospect, stock charts show that buy-and-hold investors did splendidly if they stuck
to their strategies. But that’s easy to say now.
Like the 2016 airport stampede, the 1987 stock market fall was a panic caused by fear
and based on rumors, not on real danger. In 1987, a powerful feedback loop from human
to human — not computer to computer — set the market spinning.
Such feedback loops have been well documented in birds, mice, cats and rhesus monkeys.
And in 2007 the neuroscientists Andreas Olsson, Katherine I. Nearing and Elizabeth A.
Phelps described the neural mechanisms at work when fear spreads from human to human.
We will have panics but not an exact repeat of Oct. 19, 1987. In one way, the
situation has probably gotten worse: Technology has made viral rumor transmission much
easier. But there are regulations in place that were intended to forestall another
one-day market collapse of such severity.
In response to the 1987 crash and the Brady Commission report, the New York Stock
Exchange instituted Rule 80B, a “circuit breaker” that, in its current amended form,
shuts down trading for the day if the Standard & Poor’s 500-stock index falls 20
percent from the previous close. That 20 percent threshold is interesting: Regulators
settled on a percentage decline just a trifle less than the one that occurred in 1987.
That choice may have been an unintentional homage to the power of narratives in that
episode.
But 20 percent would still be a big drop. Many people believe that stock prices are
already very high — the Dow Jones industrial average crossed 23,000 this week — and if
the right kinds of human interactions build in a crescendo, we could have another
monumental one-day decline. One-day market drops are not the greatest danger, of
course. The bear market that started during the financial crisis in 2007 was a far
more consequential downturn, and it took months to wend its way toward a market bottom
in March 2009.
That should not be understood as a prediction that the market will have another great
fall, however. It is simply an acknowledgment that such events involve the human
psyche on a mass scale. We should not be surprised if they occur or even if, for a
protracted period, the market remains remarkably calm. We are at risk, but with luck,
another perfect storm — like the one that struck on Oct. 19, 1987 — might not happen
in the next 30 years.
Robert J. Shiller is Sterling Professor of Economics at Yale.
