The October 1987 stock market crash: An exploratory analysis of share price models

The 1987 fall in share prices worldwide provides an exceptional opportunity for testing models of security price behaviour. Using a sample of 270 companies the current study investigates the explanatory power of a number of competing models, including the market model, and a factor-based model. The companies selected for analysis all reported their annual profits within the three months preceding the analysis period. The study raises interesting questions both regarding the usefulness of finance models in explaining and predicting share price behaviour and also in revealing factors which led to the severity of share price movements in the crash period.