SIMEX AND THE OCTOBER STOCK MARKET CRASH OF 1987

Abstract

"The fault, dear Brutus, lies not in our stars but in ourselves....." William Shakesphere. A 'think' is worth what people think it is worth. This is best illustrated in the great bull market which started in August 1982 and the subsequent stock market crash of October 1987. The perceptions of valuations by investors prior to the crash changed because of the unique mix of certain factors. -These factors are explored and evaluated in this study. The stock market crash gave us an opportunity to study the performance of sophisticated and complex financial instruments during a crisis situation. This study, however, concentrates on only one of these instruments, the stock index futures contract traded in SIMEX. "... When you can measure what you are speaking about, and express it in numbers, you know something about it ... " ---Lord Kelvin. And so in this study the Granger causality test is used to show that the fluctuations of the stock prices caused fluctuations in the futures' prices. A peek into the future of futures is also given at the end for introduction in SIMEX.