Super Bowl Indicator is an indicator which is believed to predict the future performance of the stock market depending on which team wins the Super Bowl. A win for a team from the old AFL (AFC division) signals a decline in the stock market for the year, while a win for a team from the [...]
The Harvard MBA Indicator attempts to gauge market sentiment by measuring the percentage of Harvard Business School’s latest graduates which go into fields deemed “market sensitive “such as investment banking, securities, venture capital etc. If the percentage is over 30%, then the market is probably near a peak, while if the percentage is under 10%, [...]
Contagion effect refers to a firm’s actions resulting in an adverse consequences affecting the entire industry the firm is in. For example, a bank may go bankrupt, causing bank runs on other banks, which worsens the industry as a whole.
Correlation is a mathematical measure used in finance to determine how related the movements in prices of different securities are.
Correlation is expressed by the correlation coefficient, which ranges from +1 to -1. A positive number indicates that the prices of the two securities move in the same direction, vice versa for a negative number. A [...]
1.Diworsification refers to a situation where a certain addition to a portfolio lowers its risk/reward tradeoff. This occurs when an investor invests in assets with the same classification, which do not yield additional diversifcation benefits and actually reduce the potential returns of a portfolio.
2.Diworsification can also refer to the situation where a company enters an [...]
Crowding out effect is a theory which states that excessive government borrowing will reduce funds available, in effect raising interest rates and crowding out private borrowers. This would increase borrowing costs for the private sector, potentially straining the economy.
Media effect refers to the phenomenon where investors act on a story from the newspaper, exacerbating current trends. This has been proven prevalent in the mortgage market, as refinances and prepayment rates may sharply increase after an article regarding low interest rates and mortgages is published in a respected newspaper. This has also been observed [...]
Wealth effect refers to the phenomenon of investors spending more money when the value of their investments increase. The increase in the value of their investments makes investors more comfortable, and hence more likely to increase consumption. This may spur economic growth, however, this may also lead to an asset/debt bubble as investors are led [...]
January effect refers to the tendency of stock prices to increase in January. This is caused by a selloff in December due to investors selling investments to claim tax losses, which momentarily depresses stock prices, paving the way for a bounce in January.
The January effect has become more muted nowadays, this may be due to [...]
Weekend effect, also known as the Monday effect, which refers to the phenomenon of stock returns being signifcantly lower on Monday compared to other days of the week. Explanations for the weekend effect include companies prone to disclosing bearish information after the market close on Friday and diminishing bullishness
Studies show evidence of the weekend effect [...]
