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Continued from A1...

     Black Monday: From August 1982 to its peak in August 1987, the Dow Jones Industrial Average (DJIA) rose from 776 to 2,722, including a 44% year-to-date rise as of August 1987. The rise in market indices for the nineteen largest markets in the world averaged 296% during this period. The average number of shares traded on the New York Stock Exchange rose from 65 million shares to 181 million shares.

     In late 1985 and early 1986, the United States economy shifted from a rapid recovery from the early 1980s recession to a slower expansion, resulting in a brief "soft landing" period as the economy slowed and inflation dropped.

     On the morning of Wednesday, October 14, 1987, the United States House Committee on Ways and Means introduced a tax bill that would reduce the tax benefits associated with financing mergers and leveraged buyouts. Also, unexpectedly high trade deficit figures announced by the United States Department of Commerce had a negative impact on the value of the US dollar while pushing interest rates upward and also put downward pressure on stock prices.

     However, sources questioned whether these news events led to the crash. Nobel-prize winning economist Robert J. Shiller surveyed 889 investors (605 individual investors and 284 institutional investors) immediately after the crash regarding several aspects of their experience at the time. Only three institutional investors and no individual investors reported a belief that the news regarding proposed tax legislation was a trigger for the crash. According to Shiller, the most common responses were related to a general mindset of investors at the time: a "gut feeling" of an impending crash, perhaps brought on by "too much indebtedness".

     On Wednesday, October 14, 1987, the DJIA dropped 95.46 points (3.81%) to 2,412.70, and it fell another 58 points (2.4%) the next day, down over 12% from the August 25 all-time high. On Friday, October 16, the DJIA fell 108.35 points (4.6%) to close at 2,246.74 on record volume. Though the markets were closed for the weekend, significant selling pressure still existed. The computer models of portfolio insurers continued to dictate very large sales. Moreover, some large mutual fund groups had procedures that enabled customers to easily redeem their shares during the weekend at the same prices that existed at the close of market on Friday. The amount of these redemption requests was far greater than the firms' cash reserves, requiring them to make large sales of shares as soon as the market opened on the following Monday. Finally, some traders anticipated these pressures and tried to get ahead of the market by selling early and aggressively Monday, before the anticipated price drop.