文档介绍：Underestimation of Portfolio
Insurance and the Crash of
October 1987
Charles J. Jacklin
Allan W. Kleidon
Paul Pfleiderer
Stanford University
We examine market crashes in the multiperiod
framework of Glosten and Milgrom (1985). Our
analysis shows that if the market’s prior beliefs
underestimate theextent of dynamic hedging strat-
egies such as portfolio insurance, then the price
will be greater than that which would be implied
by fundamentals if the extent of portfolio insur-
ance were with certainty. Over time, the
market learns of the amount of portfolio insur-
ance, and consequently reevaluates the previous
inferences drawn from purchases that were erro-
neously regarded as based on favorable infor-
mation. The result is that the price falls when the
amount of portfolio insurance is revealed.
One-time events allow for many possible explana-
tions, and the stock market crash of October 1987 is
no exception. Many attempts to explain the behavior
of prices on October 19 and the surrounding days
emphasize strains on liquidity in the major markets
ments have been received from Gene Fama, Gerard Gennotte,
Bruce Grundy, Hayne Leland, Mark Rubinstein. Bill Sharpe, Chester Spatt,
and an anonymous referee. We are also grateful for research assistance from
Howard Corb, Stephen Gray, Rui Kan, and especially Robert Whitelaw. This
research is supported by the Stanford Program in Finance. The first author
acknowledges the support of the Fletcher Jones Faculty Fellowship, the
second author acknowledges the support of Batterymarch Financial Man-
agement and the Business School Trust Faculty Fellowship, and the third
author acknowledges the support of the Robert M. and Anne T. Bass Fel-
lowship. Address correspondence and reprint requests to Charles J. Jacklin,
Graduate School of Business, Stanford University, Stanford, CA 94305.
The Review of Financial Studies 1992 Volume 5, number 1, pp. 35-63
© 1992 The Review of Financial Stu