Similar financial terms
Speculative BubbleA rapid, but usually short-lived, run-up in prices caused by excessive buying which is unrelated to any of the basic, underlying factors affecting the supply or demand for the commodity. Speculative bubbles are usually associated with a "bandwagon" effect in which speculators rush to buy the commodity (in the case of futures, "to take positions") before the price trend ends, and an even greater rush to sell the commodity (unwind positions) when prices reverse.
Dow theory
A theory contending that a primary market trend - one that will last for a year or more - will follow the movements in at least two of the three Dow Jones Averages (industrial, transportation and utilities). The theory is based on the belief that trends follow movements set by the indexes.
Agency theory
The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of anther person, a principal.
Static theory of capital structure
Theory that the firm's capital structure is determined by a trade-off of the value of tax shields against the costs of bankruptcy.
Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the markets expectations of future short-term rates. For example, an increasing sloping term structure implies increasing short-term interest rates. Related: biased expectations theories
Preferred habitat theory
A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. However, the theory rejects the assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for and supply of funds does not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances. As long as such investors are compensated by an appropriate risk p ...
Normal backwardation theory
Holds that the futures price will be bid down to a level below the expected spot price.
Modern portfolio theory
Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification.
Market segmentation or preferred habitat theory
A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.
Local expectations theory
A form of the pure expectations theory which suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon.
Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward rates will not be a pure estimate of the market's expectations of future interest rates because they embody a liquidity premium.
Shingle Theory
A suitability doctrine first introduced by the SEC in the 30's. The idea is that a broker who hangs out a shingle will represent his/her customers fairly and responsibly when making suggestions regarding securities.
