measuring return Flashcards
what is the formula for holding period return?
holding period return = (selling price - purchase price +/- cash flows ) / purchase price or equity invested
does not take into account time the investment was held
what is dollar cost averaging?
allows an investor to invest the same dollar amount on a periodic basis, typically monthly
an investor buys fewer shares when the price increases and more shares when the price decreases
what is fundamental analysis?
the process of conducting ratio analysis on the balance sheet and income statements to determine future financial performance and a forecasted stock price based upon that future financial performance
assumes: investors can determine reliable estimates of a stock’s future price behavior; some securities may be mispriced, and through fundamental analysis, it can be determined which securities are mispriced
what is technical analysis?
the process of charting and plotting a stock’s trading volume and price movements
does not involve ratio analysis
believe supply and demand drive a stock price
what is charting?
involves the plotting the historical stock prices to determine a trading pattern
what is market volume?
gives technician insight into investor sentiment
what is short interest?
a high short interest indicates pent up demand
what is odd lot trading?
trading less than 100 shares by small investors
what is The Dow Theory?
signals an end to a bull or bear market
does not indicate when it will happen, it just confirms that it has ended
what is Breadth of the Market?
measures the number of stocks that increase in value versus the number of stocks that decline in value
what is the Advance-Decline Line?
the difference between the number of stocks that closed up versus the number of stocks that decreased in value
what is the Efficient Market Hypothesis?
investors cannot consistently achieve above average market returns
stocks prices will follow a random walk
investors believe in a buy and hold an index
what is the weak form of EMH?
historical information will not help investors achieve above average market returns
rejects technical analysis and asserts fundamental analysis will help an investor
security prices reflect all price and volume data
what is the semi strong form of EMH?
both historical and public information will not help investors achieve abover average market returns
rejects both technical and fundamental analysis but inside information will lead to above average market returns
what is the strong form of EMH?
historical, public and private information will not help investors achieve above average market returns
stock prices reflect all available information and react immediately to any new information
even with inside information, the market cannot be out performed on a consistent basis
