Dow theory

Similar financial terms

Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA) is based on a portfolio consisting of 30 blue-chipi stocks in the United States. The weights given to the stocks are proportional to their prices.

Downgrade Trigger
A clause in a contract that states that the contract will be terminated with a cash settlement if the credit rating of one side falls below a certain level.

Write-down
Decreasing the book value of an asset if its book value is overstated compared to current market values.

Window contract
A guaranteed investment contract purchased with deposits over some future designated time period (the "window"), usually between 3 and 12 months. All deposits made are guaranteed the same credit rating.

Top-down equity management style
A management style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding various sectors of the financial markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the favored sectors.

Paydown
In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold.

Cramdown
When investors get heavily diluted by a susbsequent round of investment especially when the investment is a down round. Also known as a Washout.

Dow
The Dow (of the Dow Jones) Industrial Index is a stock index named after its founders. It is the "price" of a collection of 30 blue chip industrials on the New York Stock Exchange calculated throughout the trading day. It provides a measure of how the "blue chip" stock market is performing. (see also "Index")

Builder buydown loan
A mortgage loan on newly developed property that the builder subsidizes during the early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Buydowns
Mortgages in which monthly payments consist of principal and interest, with portions of these payments during the early period of the loan being provided by a third party to reduce the borrower's monthly payments.

Drawdown
The state in which the borrower obtains some of the project financing, usually progressively according to construction expenditures plus IDC.

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.

Bubble theory
Security prices sometimes move wildly above their true values.