Chapter 29

  1. affinity fraud
    Affinity fraud is the commission of fraud against people or entities with which the perpetrator of the fraud shares a common bond, such as race, ethnicity, or religious affiliation.
  2. anchoring
    Anchoring may be viewed in this context as a tendency to rely too heavily on previous beliefs.
  3. behavioral biases
    Behavioral biases are tendencies or patterns exhibited by humans that conflict with prescriptions based on rationality and empiricism.
  4. behavioral finance
    Behavioral finance studies the potential impacts of cognitive, emotional, and social factors on financing decision-making.
  5. cirsuit breaker
    A circuit breaker is a decision rule and procedure wherein exchange authorities invoke trading restrictions (even exchange closures) in an attempt to mute market fluctuations and to give market participants time to digest information and formulate their trading responses.
  6. confirmation bias
    Confirmation bias is the tendency to disproportionately interpret results that confirm a previously held opinion as being true.
  7. crowded trade
    When large investors hold substantial positions in the same asset or similar assets, it is known as a crowded trade.
  8. fraud
    Fraud is intentional deception typically for the purpose of financial gain.
  9. painting the tape
    Placing transactions to record high or low prices on the transaction records of public markets is a fraudulent activity often termed painting the tape, in reference to the historical use of ticker tape to broadcast prices.
  10. Ponzi scheme
    A Ponzi scheme is a fraudulent program that returns deposits to investors and identifies the returned capital as a distribution of profit in order to overstate the profitability of the enterprise and to attract additional and larger deposits.
  11. restitution
    Restitution is the restoration of lost funds.
  12. return on assets (ROA)
    Return on assets (ROA) is profit before financing costs (and taxes), expressed as a percentage of assets. ROE can be expressed as a function of ROA, leverage (L, which is defined here as the ratio of assets to equity), and interest costs on the financing (r): ROE = (ROA x L)-[r x(L-1)]
  13. return on equity (ROE)
    Return on equity (ROE) is profit after financing costs, expressed as a percentage of equity.
  14. spoofing
    Spoofing is the placing of large orders to influence market prices with no intention of honoring the orders if executed.
  15. unwind hypothesis
    The unwind hypothesis suggests that hedge fund losses began with the forced liquidation of one or more large equity market-neutral portfolios, primarily to raise cash or reduce leverage.
  16. window dressing
    Window dressing is a term used in the investment industry to denote a variety of legal and illegal strategies to improve the outward appearance of an investment vehicle.
Card Set
Chapter 29
Cases in Tail Events