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Stock Market Drop Today a Black Swan Event Like Black Monday in 1987

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water cooler logoThere was pandamonium on Wall Street today after the biggest single intraday drop in history.  For 15 minutes, panic set in as a major selloff occurred. Some are saying stock market drop today is the result of a trading error when someone incorrectly entered a trade of Procter and Gamble stock.  Rather than entering "millions" they entered "billions" and thus the sell-off ensued. At one point today the market was down nearly 1,000 points.  By day's end the market was down 348 points at the closing bell.

CNN is reporting that investor confidence took a hit, due to concerns with the European debt crisis, which contributed to today's plunge.black monday graph

Nasdaq is going to investigate erroneous trades after the stock market plunge. Proctor and Gamble went down 37% at one point today and ended at just 2% down.  Some folks made out like bandits, having made 35% on the stock buy.

Today's Stock Market Dip harkens back to Black Monday in 1987, which came out of the blue.  Black Monday still stands as one of the biggest Stock Market Drops in history, when the DJIA (Down Jones Industrial Average) dropped 508 points or 22.61%. 

Added to that, Black Monday didn't serve as a precursor a recession either.  It just happened and then things went back to normal.  Many experts in the financial community said Black Monday was a Black Swan Event, which is a high-impact, hard-to-predict event, beyond the realm of normal expectations. Nassim Nicholas Taleb, who wrote a book about Black Swan Events, called The Black Swan, cites three major criteria when identifying a Black Swan Event.  First, the event is a surprise.  Secondly, it has a major impact. And, lastly, after the fact, the event is rationalized by hindsight as if it had been predicted. Other examples of Black Swan Events according to Taleb are the 9/11 attacks, the rise of the internet, and World War I.

Debate still continues to this day as to why the Stock Market Crash of 1987 occurred.  And, there will no doubt be mystery as to why the market dropped nearly 1,000 points today.

Unlike, Black Monday though, the DJIA recovered today.  That's the main difference. 

 

 


Comments


1:51 AM
Tue May 18 2010
It was last week when Wall

It was last week when Wall Street encountered a Black Swan event. The stock market crash, due to a typo, and high speed trading is an occasion which was very unlikely, not typical, and most likely never to be a worry, yet it occurred. Swans are typically white, but once in a while for no evident explanation, a black swan hatches where a white one was expected. That's the reason events like the stock markets crash are called black swan events. There is essentially very little possibility or probability of something like that happening, yet somehow beyond cause it transpires.