The Australian Stock Exchange Essay Research Paper — страница 7

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1,896 in December 1986. In 1987 the rate of increase in prices accelerated and by August of that year the Dow reached is maximum closing of 2,722. Its intraday high was 2,747 on August 25, 1987. On the morning of October 14, the government announced that the merchandise trade deficit was higher than expected. On the same , the House Ways and means Committee proposed legislation to eliminate tax benefits associated with the use of debt in corporate takeovers. Also, the recipients of greenmail were to be penalized by a special tax. Risk arbitrageurs in takeovers and incentives to reduce their holdings. At the end of the day the Dow was down 95 points on a volume of 207 million shares. It had closed at 2,506 on October 13, opened down at 2,480, and closed at 2,411 on October 14.

While stocks opened at lower prices on October 15, they recover during the day. Then, in the late afternoon, there was a selling avalanche and price dropped to close at 2,354, down 57 points for the day. On October 16, the Dow Jones Industrial closed at 2,246-down 108 points on a volume of 338 million shares. This was the largest single-day drop (in points) in the history of the exchange. The maximum drop during the day (to 2,223) was even larger. The Dow had fallen 260 points in three days. October 16 was a Friday. On October 19, selling started in Tokyo, continued in London and moved to the United States when the markets opened. There were a tremendous number of sell orders and few buy orders. The Dow closed at 1,738 (the low for the day), having fallen 508 points (23%) on a

volume of 604 million shares. October 19 was competitive with other record-making bad market days and could be called the worst day in the history of the New York Stock Exchange because of the magnitude of the price drop. On October 20, selling again took place in Tokyo and London prices declined dramatically. However, in New York there was a buying panic. In the first hour of trading the Dow rose 200 points. Prices during the day were volatile. At one point the Dow dropped below 1,720, but then recovered to close at 1,841-a gain of 103 points (the largest single point gain ever!). One factor supporting the market was the buy-back programs of corporations. They purchased their own stock at prices they thought were low. The motivations were diverse. During the period of October 19

to October 23, 129 of the standard and poor Index companies made purchases. They purchased 90.4 million shares-3.9% of the total volume of trades on the New York Stock Exchange. On October 23, the purchases accounted for 6.5 percent of the total NYSE volume (and a much larger percentage of the specific companies doing the buying). The eleven companies whose purchases were over 50 percent of the total volume lost 13 percent of the value. Non-purchases lost 16.5 percent of value. The morning of Tuesday, October 20 (just before the U.S equity markets opened), the Federal Reserve announced that it stood ready to supply liquidity as needed by the financial system. This statement acted to reassure the market and probably helped bring about a turn around. The equity market’s ability

to handle transactions was strained to the limit. The system came close to collapse because of the number of transactions. After Tuesday the equity market needed a ‘rest’ and took it. The excitement was over. From the close of 2,506 on October 13 to the close of 1,738 on October 19, the market had lost 768 points (31%) or approximately $1 trillion of value. However, if we take the close of 1,840 on October 20, this is approximately the same value as the Dow had in December 1986. During 1987 the market had shot up and shot down to approximately the same level as at the beginning of the year. One concern that the even trigged was the speed with which the prices had fallen. An investor who knew it was time to sell based on one set of prices would, after a delay in completing the

transaction, sell out at a much different price (either better or worse). Prices were extremely volatile and delays in execution of trades were common and large. The United States now had a Black Monday in 1987 to accompany the Black Tuesday and Black Thursday of 1929. The 31 percent four day fall of 1987 can be compared to the 34 percent fall of October 24-29, 1929 (from the close of October24 to the low for the day of October 29, 1929). The Factors that seemed to have triggered the selling on the U.S equity markets in mid-October 1987 were: 1) The announcement of the United States trade deficit and resulting uncertain currency markets. 2) The announcement of tax legislation that would have reduced the number of corporate takeovers. 3) A slowdown in growth rates in many of the