Ch 10 - Stock Markets & Personal Finance

ECON 1102

active funds

run by managers who try to pick stocks

passive funds

attempt to mimic a broad stock market index

buy and hold

the practice of buying stocks and holding them for the long run, regardless of what prices do in the short run

risk-return trade off

higher returns come at the price of higher risk

technical analysis

an approach that looks for patterns and trends in stock and asset prices

efficient markets hypothesis

the prices of traded assets reflect all publicly available information

speculative bubbles

arise when stock prices rise far higher, and more rapidly, than the fundamental prospects of the company

• e.g., price of a stock continuously rises because people expect it to, not because the company is actually making more money

herd

investors buy when others are buying and sell when others are selling

• can result in increased stock prices, followed by big decreases