Investor Behavior in the October 1987 Stock Market Crash: Survey Evidence

Abstract

Questionnaires were sent out at the time of the October 19, 1987 stock market crash to both individual and institutional investors inquiring about their behavior during the crash. Nearly 1000 responses were received. The survey results show that: 1. no news story or rumor appearing on the 19th or over the preceding weekend was responsible for investor behavior, 2. investors' importance rating of news appearing over the preceding week showed only a slight relation to decisions to buy or sell, 3. there was a great deal of investor talk and anxiety around October 19, much more than suggested by the volume of trade, 4. Many investors thought that they could predict the market, 5. Both buyers and sellers generally thought before the crash that the market was overvalued, 6. Most investors interpreted the crash as due to the psychology of other investors, 7. Many investors were influenced by technical analysis considerations, 8. Portfolio insurance is only a small part of predetermined stop-loss behavior, and 9. Some investors changed their investment strategy before the crash.