Stories

Machine dependence could lead to market crash

"Black Monday 2: The Next Machine-Driven Meltdown ... In the rise of computer-driven trading, some hear echoes of the stock market's 1987 crash," according to the Barron's cover story, by Ben Levisohn:

  • The problem: "[M]arket participants have come to rely increasingly on computers to run quantitative, rules-based systems known as algorithms to pick stocks, mitigate risk, place trades, bet on volatility, and much more — and they bear a resemblance to those blamed for Black Monday ... Oct. 19, 1987 — when the Dow Jones Industrial Average shed nearly a quarter of its value in wave after wave of selling."
  • Why it matters: "The proliferation of computer-driven investing has created an illusion that risk can be measured and managed."
  • "But several anomalous episodes in recent years involving sudden, severe, and seemingly inexplicable price swings suggest that the next market selloff could be exacerbated by the fact that machines are at the controls."