Coin Flipping Contest
Investment metaphor for gambling.
Stock market in which the price for any given stock effectively represents the expected net present value of all future profits.
Efficient Market Hypothesis (EMH)
Theory stating that security prices fully reflect all available information.
Weak Form Hypothesis
Premise that current prices reflect all stock market trading information.
Stock Market Information
Stock price and trading volume information.
Semistrong Form Hypothesis
Premise that stock prices reflect all public information.
Freely shared knowledge.
Strong Form Hypothesis
Premise that stock prices reflect all public information and nonpublic information.
Proprietary data within the firm.
Data points over time.
Variation from the average.
Bell shaped probability curve.
Irregular pattern of numbers that defies prediction.
Random Walk Theory
Concept that stock price movements do not follow any patterns or trends.
Even bet, or 50-50 chance.
Random Walk with Drift
Slight upward bias to inherently unpredictable daily stock prices.
Predicting the future direction of stock prices from graphs of previous prices.
Belief that a short term deviation from the "fair" gamble changes the odds of the next gamble.
Data Snooping Problem
Reliance on chance observations in historical data as a guide to investment decision making.
Backward looking analysis.
Investment standard to which portfolio performance is compared.
Subscription service that delivers periodic investing advice.
Stock Market Volatility
Large increases and decreases in prices over time.
Level of optimism or pessimism by investors; also called sentiment.
Significant overvaluation of economic fundamentals in the stock market.
Extreme change in financial asset values tied to changing economic fundamentals.
Extreme change in financial asset values that cannot be tied to changes in economic fundamentals.
Company with very small stock market capitalization.
Listing of price quotes for microcap stocks that trade in the over-the-counter market.
Stock that trades at prices below $1.
Unrequested telephone solicitation.
Investment scam that preys on members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups.
Fraud in which new investor money is used to make payments to earlier investors to give the false illusion of profitability.
Manipulation conspiracy in which promoters artificially inflate a stock price so that they can sell their own inventories to unwitting investors.