What is the Fisher Effect? The Fisher Effect refers to the relationship between nominal interest rates, real interest rates, and inflation expectations. The relationship was first described by American economist Irving Fisher in 1930. The relationship is described by the following equation: (1+i) = (1+r) * (1+π) Where: i = Nominal Interest Rate r =…
What is Financial Health? Financial health is a basic measure of the soundness of an individual’s finances – essentially, it’s about what kind of financial shape you’re in overall. You may also view it as a reflection of your level of financial security. Since your financial health encompasses all the various aspects of…
What is a Sovereign Wealth Fund (SWF)? A sovereign wealth fund (SWF), also known as a social wealth fund, is the surplus money that a country accrues over time. The government-backed pool of funds is mostly funded from a country’s foreign exchange reserves. Other sources of funds for an SWF account include: Bank reserves Surplus…
What is Enterprise Value-to-Sales (EV/Sales)? Enterprise value-to-sales (EV/Sales) is a financial ratio that measures a company’s total value (in enterprise value terms) to its total sales revenue. It is further simplified as the EV per a dollar of sales. It means that the higher the ratio, the more “expensive” or valuable the company is and…
What is Homoskedastic? Homoskedastic is the situation in a regression model in which the residual term for each observation is constant for all observations. It essentially means that as the value of the dependent variable changes, the error term does not vary much for each observation. However, when the residual term’s size differs across an…
What are Homogeneous Expectations? Homogeneous expectations is a subjective belief, entrenched in the Modern Portfolio Theory (MPT) proposed by American economist Harry Markowitz, and postulates that all investors have the same expectations and arrive at similar conclusions. The assumption states that investors are rational in their decisions, resulting in homogeneous investment strategies. It applies to…
What is Homo Economicus? Homo economicus is a theoretical abstraction that portrays humans as rational and full of self-interest, and who pursue their well-being to the fullest in all transactions. The economic man is described as one who uses rational judgment to avoid unnecessary work. The rationality described in homo economicus is considered the cornerstone…
What is a Homestead Exemption? A homestead exemption refers to a legal provision designed to protect the family home from the reach of certain classes of creditors or to prevent circumstances that result from the homeowner’s death or alienation by the owner without the spouse’s consent. The principal objective of homestead exemptions is to act…
What is the Homeowners Protection Act of 1998? The Homeowners Protection Act of 1998 is a law that establishes provisions for mandatory cancellation and termination of private insurance on residential mortgage loans under certain circumstances. The legislation, also known as the PMI Cancellation Act, protects borrowers who use their primary homes as collateral from paying…
What are Homeowners Association Fees? A homeowners association fee is a periodic fee paid by homeowners living in a homeowners association community to help with maintenance and improvement of the property, amenities, and common areas. The fee varies across homeowners associations, and the amount levied on homeowners depends on the services provided and the community’s…
