`Black Monday' traced to a rush for the door by anxious investors

PROBABLY the best explanation for the stock market crash of Oct. 19 is investor panic. Indeed, a survey of individuals and institutional investors mailed on ``Black Monday'' by a Yale University economics professor, Robert J. Shiller, found that many of the nearly 1,000 who responded manifested symptoms of fear - difficulty concentrating, sweaty palms, tightness in the chest, irritability, or rapid pulse.

Professor Shiller finds the analogy of a theater fire not too bad. The theater owner announces a fire and asks everyone to walk out quietly. Someone gets excited, runs for the door, and starts a panic. The aisles and doors aren't big enough to accommodate the rushing crowd. People are trampled.

In the case of the stock market bust, investors had more time to reflect. They had a good logical reason for getting out of the market - to save their financial skin, just as the theater occupants were trying to save their lives. But the market couldn't accommodate the rush of sellers, and stocks plunged a record 508 points on the Dow Jones industrial average in one day.

There have already been millions of words written on Black Monday. But Mr. Shiller's survey asked a host of those actually buying or selling on that day for their motivation and action.

It showed that no news story or rumor appearing on Oct. 19 or the preceding weekend was responsible for investor behavior. Most did not sell because of the drop in United States stock prices from Oct. 14 to 16, the drop in prices on the Tokyo or London exchanges, bad trade deficit figures, a poor producer price figure, the short-run sell signal of a popular investment letter, the increase in the prime rate by Chemical Bank Oct. 15, Treasury Secretary James A. Baker III suggesting the dollar should fall further, the US attack on an Iranian oil station, or too much debt (budget, international, or personal).

``The primary cause appears to have been that already nervous investors were trying desperately to guess when other investors were going to act,'' says Shiller.

Buyers and sellers generally thought before the crash that stock prices were overvalued. Many thought they could predict the market - in other words, stay in while the market moved higher and get out before a crash. Investors were nervous, asking brokers and friends about their opinion of the market. They worried about market psychology.

What prompted investor panic that Monday was seeing someone run for the door: The stock market dropped 200 points in the morning.

Almost everyone in Shiller's random sample heard of the market crash that Monday. In fact, on average, investors got the news by 1:56 p.m., which is early considering this is only 10:56 p.m. on the West Coast, where some of those surveyed live.

Another factor that discomfited some investors was the rise in the Treasury bond yield to 10.5 percent, making stocks look less attractive.

Other sources point to the problems institutions had in dealing with the selling rush. For example, Fidelity Investments, the nation's largest mutual fund, was forced to unload nearly $1 billion in stocks because of a rush of sell orders from shareholders. Specialists, the buyers of last resort on the floor of the exchanges, were overwhelmed by sell orders and lacked the capital to support prices.

But the debacle still boils down to a rush for the door after speculation pushed stock prices too high.