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Odd lot theory |
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Odd lot theoryThe theory that profits can be made by making trades contrary to odd-lot trading patterns, since odd-lot investors have poor timing. This theory is no longer popular.Odd lot theory Similar MatchesDow theoryDow theoryIn 1887 Charles Dow (as in 'The Dow Jones') developed two stock market 'averages':The Industrial Average, made up of 12 blue chip stocksThe Rail Average, made up of 20 railroad companiesIn 1900 he wrote a series of articles noting that the direction of prices in each average appeared to be based on a set of rules. Collectively, these became known as The Dow Theory and the key precepts are summarised below.Dow TheoryA share price reflects everything that is known about a stockThis means that all the positives and all the negatives about a company are assumed to be known by the market and built into the share price. Implicitly, no stocks are undervalued, because the market has 'perfect' knowledge.At any given time, there are 3 trends unfolding in the stock market:The primary trend lasting for more than one yearThe secondary trend which is a corrective reaction to the primary trend and usually lasts form one to three monthsThe tertiary or minor trend which is a short term movement lasting from one day to three weeks.Primary trends have three phasesAggressive buying by well informed investors ahead of economic recovery while most investors are still bearish about the marketGeneral buying by the majority of investors as company earnings pick up and economic conditions improveHeadlong rush into stocks by everybody, as companies report record earnings. Meanwhile, the well informed investors are starting to sell even though prices may be rising.Volume Confirms the TrendRallies in the market are accompanied by increasing volume, and falls with decreasing volume.A Trend Continues Until a Reversal SignalIf a primary trend is confirmed by the movement of both averages it will continue until there is a definite reversal signal. So once a primary trend has started the chances are it will continue, but once it has been around for a while the chances of continuation are less. Product cycle theoryProduct cycle theoryTheory suggesting that a firm initially establish itself locally and expand into foreign markets in response to foreign demand for its product; over time, the MNC will grow in foreign markets; after some point, its foreign business may decline unless it can differentiate its product from competitors. Game TheoryGame TheoryGame Theory is a theory of rational behavior of participants in interactive decision-making scenarios. It helps predict how other participants of the situation / scenario (game) will respond in certain situations, or to certain decisions. Understanding participants' responses ahead of a decision, should help the initial decision maker make better decisions. It is applicable in areas such as:open sourcedevelopment. Freerider issues forexample. Should you contribute resources when somone else may benefitwithout contribution?standardssetting. Should you cooperate with your competitors to help expand andstandardize the marketplace?dynamicpricing. Should you bid at a price point, and will that create a higherbid from someone else?competitor reactions to decisions. When making marketing decisions, youcannot only analyze how your customers may respond without considering howyour competitors will respond, as this will in turn impact your customers.A popular game theory model, for a non-zero sum situation, is the prisoners dilemma. Bicycle TheoryBicycle TheoryWith regard to the process of multilateral trade liberalization, the theory that if it ceases to move forward (i.e., achieve further liberalization), then it will collapse (i.e., past liberalization will be reversed). The idea was suggested by Bergsten (1975) and named by Bhagwati (1988). Game theoryGame theoryThe modeling of strategic interactions among agents, used in economic models where the numbers of interacting agents (firms, governments, etc.) is small enough that each has a perceptible influence on the others. Further SuggestionsPresidential election cycle theoryLabor theory of value Dow Theory Dow dividend theory Theory of second best Trade theory Bubble theory Agency theory Purchasing power parity theory Cushion theory Dependency Theory Normal backwardation theory capital market theory New Trade Theory Preferred habitat theory Portfolio theory Conduit theory Efficient markets theory(EMT) Greater fool theory Short interest theory Elliott Wave Theory Local expectations theory efficient market theory Complexity Theory Expectations theory of forward exchange rates |
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