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MGFD10H3 (3)


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Derek Chau

Neglected Firm A theory that explains the tendency for certain lesser-known companies to outperform better-known companies. The neglected firm effect suggests that the lesser-known companies are able to generate higher returns on their stock shares, because they are less likely to be analyzed and scrutinized by market analysts. The smaller firms might also exhibit better performance, because of the higher risk/higher reward potential of small, lesser-known stocks, with a higher relative growth percentage. Reversal A change in the direction of a price trend. On a price chart, reversals undergo a recognizable change in the price structure. An uptrend, which is a series of higher highs and higher lows, reverses into a downtrend by changing to a series of lower highs and lower lows. A downtrend, which is a series of lower highs and lower lows, reverses into an uptrend by changing to a series of higher highs and higher lows. Behavioral Information processing - Forecasting errors, Overconfidence, Conservatism, Sample size neglect and representativeness. Behavioral biases - Framing and mental accounting, Regret avoidance Limits to arbitrage - Fundamental risk, implementation costs, model risk Point and figure charts  The figure has no time dimension  It traces significant upward or downward moves in stock prices Bollinger Bands  Other than close price  Typical Price = (high + low + close)/3  Weighted Price = (high + low + close + close)/4 Stochastic Indicator  A n-day (usually 21-day) %K  closelowest low(n)  100    %D: 3-day moving average of %K  highest high(n)  lowest low(n)   %K > 80  Overbought  %K < 20  Oversold Sentiment indicators  Trin > 1  bearish  Overbought when the 10-day moving average of the TRIN declines below .8 and oversold when it moves above 1.2 Volume declining/ Number declining Trin  Volume advancing/ Number advancing American Depository Receipts (ADR) - Indirect investment in foreign stocks World Equity Benchmark Shares (WEBS) - Indirect investment in foreign indexes Collateralized Debt Obligations (CDO) - Bundle a portfolio of fixed-income assets and split into different tranches (risk classes) Equity-linked securities - Bonds + selling put options on particular stocks/assets Principal protected notes - Gov’t bonds + call options on stocks/indexes Certificate Of Deposit A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years. Commercial Paper An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. Factors influencing
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