Weak EMH

November 10th, 2010 by Kara in Dictionary, Financial Terms

Weak EMH is a derivative of the EMH theory. The theory states that stock prices fully reflect all market trading data, such as the history of past prices, trading volume, or short interest. This version of the hypothesis implies that trend analysis is futile. This form of EMH is the most supported version of EMH but still runs into problems when trying to explain the tech stock bubble in 2000 and the housing bubble in 2006. Share and Enjoy ...

Semi-Strong EMH

November 10th, 2010 by Kara in Dictionary, Financial Terms

A derivative of the EMH theory, Semi-Strong EMH states that stock prices already reflect all public information making it meaningless to look over a company’s financials or pay attention to news headlines about a company to make stock predictions. This theory is more widely accepted than the strong EMH theory but it still has many opponents. Share and Enjoy

Strong EMH

November 10th, 2010 by Kara in Dictionary, Financial Terms

A derivative of the EMH theory, Strong EMH states that stock prices reflect all information, public and private. This means that it is effectively impossible to use information for an effective trading strategy since all the information is already included in the stock price. This theory has its share of supporters and opponents. Share and Enjoy

Efficient Market Hypothesis

November 10th, 2010 by Kara in Dictionary, Financial Terms

The Efficient Market Hypothesis (EMH) states that it is impossible to outperform the stock market on a consistent basis. EMH claims that a stock’s price reflects all information. Therefore, there are no undervalued or overvalued stocks because the price on the stock exchange is the fair value of that particular stock. According to the EMH, the only way to beat the market is to purchase riskier investments. This theory has many disbelievers who point to Warren Buffet as an ...

Disinflation

November 10th, 2010 by Kara in Dictionary, Financial Terms

Disinflation is a decrease in the rate of inflation. Although sometimes confused with deflation, prices do not actually drop nor does disinflation signal an economy in trouble, rather it is simply slowing inflation. Share and Enjoy

Deflation

November 10th, 2010 by Kara in Dictionary, Financial Terms

Deflation is the opposite of inflation. Deflation is the general decline in the price of goods and services. Causes of deflation include a reduction in the supply of money or credit into the economy, or a large decrease in government or personal spending. Deflation may be cause by increased unemployment as well. Share and Enjoy

Inflation

November 10th, 2010 by Kara in Dictionary, Financial Terms

Inflation is the general increase in the price of goods and services. When inflation rises, purchasing power falls. Two theories for the causes of rising inflation include demand-pull, which says that demand rises faster than supply so prices go up, and cost-push, which says that the increase in wages and materials is pushed to the consumer making everything more expensive. The Federal Reserve Bank decides the interest rate taking into account inflation. The Fed keeps the rate low to ...

Flow Trading

November 10th, 2010 by Kara in Dictionary, Financial Terms

When a firm does trades on behalf of its clients, it is called flow trading. This type of trading is different from proprietary trading in which the firm trades for its own direct gain and uses its own equity. Share and Enjoy

Proprietary Trading

November 10th, 2010 by Kara in Dictionary, Financial Terms

Proprietary trading is when a firm trades its own funds to make gains on the market directly instead of through commission. Proprietary trading is considered to be riskier as the firm is using its own equity. Share and Enjoy

Technical Analysis

November 10th, 2010 by Kara in Dictionary, Financial Terms

Evaluating securities based on market activity, not by intrinsic value. Technical analysts will use graphs and charts of market activity to try and find patterns that they can use to predict the future value of the stock. This is considered the opposite of Fundamental analysis. Share and Enjoy