Archive | July 2012
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Investor sentiment refers to the propensity of individuals to trade on “noise” and emotions rather than fundamentals. As a contrarian stock market indicator, investor sentiment affects stock prices. Indicators that measure investor sentiment includes: Investor Intelligence Sentiment Index, American Association of Individual Investors (AAII) Sentiment Indicator, Nova/Ursa Ratio, the Short Interest/Total Market Float, and the […]
Conventional theories are grounded in the assumption that investors make rational decisions. Behavioral finance and emotional investing counter such notion by suggesting that emotions and gut reactions influence investment decisions and we tend to be overconfident in our knowledge, which can be extremely detrimental to our portfolio and long-term investment goals. Psychology studies reveal that […]
Portfolio Optimization Since an investor can trade risk for return along the efficient frontier, the motivation of optimizing a portfolio originates from the idea that a greater expected return for the same level of risk can be achieved if one can rearrange the portfolio. Equity portfolios should always be constructed in a manner that risk, […]
Risk allocation emerged in the late 1900s, in response to concerns about the level of risk being accepted in a portfolio. The process involves setting up a plan for how much an investor plans on taking with the long-term investments. It is based on one’s estimation of multiple parameters over different time frames with different […]
Essentials of LIBOR The London Interbank Offered Rate (LIBOR), is the average interest rate at which banks make short-term loans to one another. It is a borrowing rate set daily by a panel of banks, which currently comprises 18 banks. The rate is calculated for ten currencies and for 15 maturities from overnight to one […]