Chapter 6

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Chapter 6
2010-10-04 17:43:55

Chapter 6
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  1. Coin Flipping Contest
    Investment metaphor for gambling.
  2. Efficient Market
    Stock market in which the price for any given stock effectively represents the expected net present value of all future profits.
  3. Efficient Market Hypothesis (EMH)
    Theory stating that security prices fully reflect all available information.
  4. Weak Form Hypothesis
    Premise that current prices reflect all stock market trading information.
  5. Stock Market Information
    Stock price and trading volume information.
  6. Semistrong Form Hypothesis
    Premise that stock prices reflect all public information.
  7. Public Information
    Freely shared knowledge.
  8. Strong Form Hypothesis
    Premise that stock prices reflect all public information and nonpublic information.
  9. Insider Information
    Proprietary data within the firm.
  10. Time Series
    Data points over time.
  11. Dispersion
    Variation from the average.
  12. Nominal Distribution
    Bell shaped probability curve.
  13. Random Walk
    Irregular pattern of numbers that defies prediction.
  14. Random Walk Theory
    Concept that stock price movements do not follow any patterns or trends.
  15. Fair Game
    Even bet, or 50-50 chance.
  16. Random Walk with Drift
    Slight upward bias to inherently unpredictable daily stock prices.
  17. Charting
    Predicting the future direction of stock prices from graphs of previous prices.
  18. Gambler's Fallacy
    Belief that a short term deviation from the "fair" gamble changes the odds of the next gamble.
  19. Data Snooping Problem
    Reliance on chance observations in historical data as a guide to investment decision making.
  20. Back Testing
    Backward looking analysis.
  21. Investment Benchmark
    Investment standard to which portfolio performance is compared.
  22. Investment Newsletter
    Subscription service that delivers periodic investing advice.
  23. Stock Market Volatility
    Large increases and decreases in prices over time.
  24. Investor Mood
    Level of optimism or pessimism by investors; also called sentiment.
  25. Market Bubble
    Significant overvaluation of economic fundamentals in the stock market.
  26. Rational Bubble
    Extreme change in financial asset values tied to changing economic fundamentals.
  27. Irrational Bubble
    Extreme change in financial asset values that cannot be tied to changes in economic fundamentals.
  28. Microcap Stock
    Company with very small stock market capitalization.
  29. Pink Sheet
    Listing of price quotes for microcap stocks that trade in the over-the-counter market.
  30. Penny Stock
    Stock that trades at prices below $1.
  31. Cold Call
    Unrequested telephone solicitation.
  32. Affinity Fraud
    Investment scam that preys on members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups.
  33. Ponzi Scheme
    Fraud in which new investor money is used to make payments to earlier investors to give the false illusion of profitability.
  34. Pump-and-Dump Scheme
    Manipulation conspiracy in which promoters artificially inflate a stock price so that they can sell their own inventories to unwitting investors.