/biz/ - Business & Finance

>>57091621
>decoupling of these markets meant that futures prices had temporarily lost their validity as a vehicle for price discovery; they no longer could be relied upon to inform traders of the direction or degree of stock market expectations. This had harmful effects: it added to the atmosphere of uncertainty and confusion at a time when investor confidence was sorely needed; it discouraged investors from "leaning against the wind" and buying stocks since the discount in the futures market logically implied that investors could wait and purchase stocks at an even lower price; and it encouraged portfolio insurance investors to sell in the stock market, putting further downward pressure on stock prices.[99]

>gap between the futures and stocks was quickly noted by index arbitrage traders who tried to profit through sell at market orders. Index arbitrage, a form of program trading,[100] added to the confusion and the downward pressure on prices