Financial Theory Articles

We take a closer look at the theories that attempt to explain and influence the market.

Understanding portfolio performance, whether for a self-managed, discretionary portfolio or a non-discretionary portfolio, is vital to determining whether the portfolio strategy is working or needs to be amended. There are numerous ways to measure performance and determine if the strategy is successful.

When market volatility spikes or stalls, newspapers, websites, bloggers and television commentators all refer to the VIX®. Formally known as the CBOE Volatility Index, the VIX is a benchmark index designed specifically to track S&P 500 volatility.

Find out how this financial visionary helped everyday people enter the world of finance.

Learn how a country's current account balance reflects the country's economic health.

For investors seeking growth, income AND capital preservation, the Thrift Savings Plan offered by the U.S. government is a great option to consider. In this article, we examine the five core funds offered in the TSP.

Find out why many investors think the capital asset pricing model is full of holes.

ICAPM is one of several models used to determine the required return on an asset, discover its limitations and how to use it.

Here are four common common behavioral biases for traders and how to minimize their effects on your portoflio.

No one doubts the value and importance of investor education and sophistication, but many investors are not really all that sophisticated. Goldman Sachs was scrutinized for marketing complex securities to its investors without telling them that a major hedge fund had taken a short position against these securities.

Cash is generally regarded as a drag on investment returns, but sometimes it may be preferable to hold a substantial cash amount instead of investing it in other assets. This is because having cash on hand gives an investor the flexibility to acquire an asset or assets at bargain prices when the opportunity arises, such as during periods of uncertainty when cash is king.

Modern portfolio theory and behavioral finance represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions is to think of modern portfolio theory as how the financial markets would work in the ideal world, and behavioral finance as how financial markets work in the real world.

Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

The P/B ratio can be an easy way to determine a company's value, but it isn't magic!

It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.

Check out how the assumptions of theoretical risk models compare to actual market performance.

Just because you're willing to accept a risk, doesn't mean you always should.

A diversified portfolio will protect you in a tough market. Get some solid tips here!

By following the strategies of the pros, even a beginner can learn to invest like an expert.

Here are 5 prize-winning economic theories that you’ll want to be familiar with.

Learn about Okun's Law, why it is important and how it stood the test of time since first being published.

Hedge fund analysis requires more than just the metrics used to analyze mutual funds.

Find out how VC firms make the market go round, and round and round.

These are two investing practices that seek to counter our natural inclination toward market timing by canceling out some of the risk.

Calculate whether the market is paying too much for a particular stock.

By using economic releases in a timely way, buyers can beat the "big players" without endless chart analysis.

Sometimes positive announcements can mean bad news for a stock. Find out why.

Learn how to think big by investing in smaller stocks.

Just like private investors, analysts are sometimes guilty of following the herd and failing to think independently.

Social impact bonds are powerful investment vehicles for the solving of social issues in a sustainable fashion.

The buy-and-hold investment strategy requires investors to disregard their emotional responses to market movements.

More common risk theories can lead to missed opportunities. Find out how margin of safety can propel your portfolio.

Discover a few of the most popular probability distributions and how to calculate them.

Over the last 26 Summer Olympics, the average rate of return of the DJIA during the games was an impressive 4%.

Beta says something about price risk, but how much does it say about fundamental risk factors? Find out here.

Companies don't elect to leave an exchange so much as they're asked. Find out why.

Understanding how money is made and lost over time can help you improve your returns.

Your golden years are meant to be stress free. Keep them that way by protecting your assets.

Whether it's fireworks, parades or festivals, Fourth of July celebrations in these states are often big and expensive.

Investing in sectors may trump international investments for providing diversification.

Your financial fate is influenced very substantially by whether your broker or firm is immoral, amoral or moral.

Here's a look at some of the methods the federal government is using to help economic recovery in the U.S.

The market for equities has gone through numerous crises, but when an IPO hits the market, it can create lots of excitement for investors and can generate billions of dollars for the company.

Understanding risk is key to better investing.

Here are some historical examples of companies that tried to do the right thing and failed miserably.

Financial literacy is an important subject to teach kids. It is now being taught in some schools.

The increase in communications technology has companies competing in a global market.

Find out if mutual fund managers can successfully pick stocks or if you're better off with an index fund.

Historically, Ivy League endowments have had a successful investment strategy. Will it work for you?

These statistical measurements highlight how to mitigate risk and increase rewards.

Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.

Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless.

Learn about a study that compares the behaviors of some stockbrokers to that of certifiable psychopaths.

Look for factors that influence supply and demand and you might be able to predict which way housing prices will trend.

LBOs are often presented as predatory by the media, but it really depends on which side of the deal you're on.

Understanding gender differences and how they are changing is fundamental to understanding the investing world.

Learn how to evaluate a company's performance using metrics such as ROE, EPS and P/E ratio.

Credentials like on-the-job experience and licenses can be much more important for some financial careers.

Is your investment management firm GIPS compliant? Learn more here.

Increase your returns by creating the right balance of both these risk measures.

Find out how to adjust your portfolio when the market fluctuates to increase your potential return.

The gaming market has a rich history in America, from lotteries in colonial settlements and card games in old west saloons to today's multibillion-dollar casino industry.

Learn about different investment strategies and how to pick the right one for you.

Learn how the writings of John Burr Williams and Harry Markowitz led to the creation of the investment portfolio.

Get the full story on this asset class before you write it off as too risky.

Discover the methods behind financial forecasts and the risks inherent when we seek to predict the future.

Find out how a cat and a ladybug prove markets are both random and efficient.

Learn about what is being dubbed the low-volatility anomaly, why it exists and what we can learn from it.

How a company pays in a merger or acquisition can reveal a lot about the buyer and seller. We tell you what to look for.

Sometimes the best defense is the lack of offense. Here are the best boring ways to protect your portfolio in volatile markets.

Many investors are tempted to change their portfolio options when the 2012 predictions come out. Should you do the same?

Can you really trust what the financial services industry puts out? We tell about some tricks that hide the truth.

Don't get swindled into buying snake oil from Wall Street. Find out three lies that can lead to losing investments.

Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.

We give you four equations to help figure out the yields on your investments.

The Options Industry Council is an educational organization for options traders. We introduce you to the Council and the online tools available.

There are alternatives to national currencies. Discover complementary currencies and how they work.

Without this risk-reduction technique, your chance of loss will be unnecessarily high.

These fallacies have hounded free market economists since the days of Adam Smith.

A disciplined rebalancing practice can add a lot of value to a long-term strategic asset allocation program.

Learn how to figure out how two stocks might move together in the future by calculating covariance.

Insider trading use to be profitable, but can it be today? Learn if investors should be paying attention to insiders.

We look at some past Wall Street protests and explain why Occupy Wall Street is quite different.

Banks are a part of ancient history. Find out how this system of money management developed into what we know today.

What is the difference between a standard of living and quality of life? Find out in this breakdown.

Curious about how emotions and biases affect the market? Find some useful insight here.

These lessons from Icahn, Buffett, Slim and others will help you with your portfolio and trading style.

Socially responsible investing allows you to express your political views in an unlikely way.

Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.

Find out how to spot these four biases, and start making more logical investing decisions.

Whether up, down or sideways, learn about some of the factors that drive stock market moves.

How can the presidential election affect your portfolio? Find out here.

Check out the history and inner workings of the world's six most well-known stock exchanges.

Find out how this ratio can help you evaluate companies and make investment decisions.

Find out the history of FINRA, and how it's organized to monitor the markets and protect investors.

Speculators often get a bad rap, but it's important to remember that they only observe trends, not manipulate them.

Before you tackle this challenge, know the challenges of forming and operating an official nonprofit organization.