Arbitrage, Nontrading, and Stale Prices:

This paper explains a puzzle created by the S&P 500 cash and futures prices during the crash of October 1987. The cash index appears to be a moving average of the futures, but nontrading in constituent stocks explains only the initial period of delayed openings. However, execution of stale limit buy orders, given the high volume and NYSE market mechanisms at the time, resulted in extraordinary levels of stale stock prices that were not caused by nontrading. The model is supported in aggregate S&P data and transactions data for individual stocks.