Black Monday and the Limits of Financial Knowledge

The stock market crash of October 19, 1987 is often explained through market microstructure or through investor psychology. This paper advances a more nuanced interpretation, in which it is argued that Black Monday revealed a fundamental epistemic limit of financial modeling in modern markets. Through an analysis of portfolio insurance, derivative expirations associated with “triple witching,” and contemporaneous market data, this paper shows how algorithmic trading bolstered uncertainty.