What is a Death Cross? The death cross is a chart pattern that indicates the transition from a bull market to a bear market. This technical indicator occurs when a security’s short-term moving average (e.g., 50-day) crosses from above to below a long-term moving average (e.g., 200-day). The chart below shows a death cross occurring…
What is the Relative Strength Index (RSI)? The Relative Strength Index (RSI) is one of the most popular and widely used momentum oscillators. It was originally developed by the famed mechanical engineer turned technical analyst, J. Welles Wilder. The RSI measures both the speed and rate of change in price movements within the market. Source…
What is a Ten Bagger? Ten bagger refers to an investment that generates a return of ten times the amount of the initial investment, i.e., a 1,000% return on investment (ROI). The term 10 bagger was popularized by famous Wall Street investor Peter Lynch, who borrowed it from baseball, where additional base hits are also referred…
What is the VIX? The Chicago Board Options Exchange (CBOE) created the VIX (CBOE Volatility Index) to measure the 30-day expected volatility of the US stock market, sometimes called the “fear index”. The VIX is based on the prices of options on the S&P 500 Index and is calculated by aggregating weighted prices of the…
What are Forward Rates Models? Forward rates models are theoretical frameworks used to analyze and predict the expected value of economic variables in the future. Forward rates usually refer to either the forward interest rate or the forward exchange rate. Expectations Hypothesis Consider the following example: An N-year government bond costs Q(t)N in period t…
What is Framing Bias? Framing bias occurs when people make a decision based on the way the information is presented, as opposed to just on the facts themselves. The same facts presented in two different ways can lead to people making different judgments or decisions. In behavioral finance, investors may react to a particular opportunity…
What is Loss Aversion? Loss aversion is a tendency in behavioral finance where investors are so fearful of losses that they focus on trying to avoid a loss more so than on making gains. The more one experiences losses, the more likely they are to become prone to loss aversion. Research on loss aversion shows…
What is Herd Mentality Bias? In behavioral finance, herd mentality bias refers to investors’ tendency to follow and copy what other investors are doing. They are largely influenced by emotion and instinct, rather than by their own independent analysis. This guide provides examples of how investors may succumb to herd bias, as part of behavioral…
What is Overconfidence Bias? Overconfidence bias is a tendency to hold a false and misleading assessment of our skills, intellect, or talent. In short, it’s an egotistical belief that we’re better than we actually are. It can be a dangerous bias and is very prolific in behavioral finance and capital markets. This guide will unpack…
