Financial Theory Articles

  1. The Most Accurate Way To Gauge Returns: The Compound Annual Growth Rate

    The compound annual growth rate, or CAGR for short, represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios and anything that can rise or fall in value over time.
  2. Learn Simple And Compound Interest

    Investopedia explains: Interest is defined as the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest.
  3. Accelerating Returns With Continuous Compounding

    Investopedia explains the natural log and exponential functions used to calculate this value.
  4. A Study On The Wealth Effect And The Economy

    The notion that the wealth effect spurs personal consumption makes sense intuitively. After all, wouldn’t you be more inclined to buy that big-screen TV or SUV if your house or stock portfolio had appreciated nicely and you were sitting on huge gains?
  5. Diversification Beyond Stocks

    If you think holding several stocks means you're diversified, think again - there's much more to be done to reduce portfolio risk.
  6. Calculating Covariance For Stocks

    Learn how to figure out how two stocks might move together in the future by calculating covariance.
  7. Seven Market Anomalies Investors Should Know

    Though they're unpredictable and heavily contested, market anomalies can often work in an investor's favor.
  8. Financial Markets: Random, Cyclical Or Both?

    Are the markets random or cyclical? It depends on who you ask. Here, we go over both sides of the argument.
  9. The Intelligent Investor: Benjamin Graham

    Learn about the man who mentored Warren Buffett, who eventually became the investing "Oracle of Omaha".
  10. What Are The Odds Of Scoring A Winning Trade?

    Just because you're on a winning streak doesn't mean you're a skilled trader. Find out why.
  11. Black Swan Events And Investment

    These world-changing events are rare and difficult to predict, but they have serious implications for your investments.
  12. The Optimal Use Of Financial Leverage In A Corporate Capital Structure

    The amount of debt and equity that makes up a company's capital structure has many risk and return implications.
  13. The Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component of any attempt to analyze a company for investment. After all, when you invest in a share of stock or an entire business, you want to know you are paying a sensible price.
  14. What Is Market Efficiency?

    The efficient market hypothesis (EMH) suggests that stock prices fully reflect all available information in the market. Is this possible?
  15. The Unique Ways Women Approach Finance

    Understanding gender differences and how they are changing is fundamental to understanding the investing world.
  16. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.
  17. Top 4 Most Scandalous Insider Trading Debacles

    Here we look at some of the landmark incidents of insider trading.
  18. Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  19. 7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
  20. Breaking Down The Geometric Mean

    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.
  21. Tracking Volatility: How The VIX Is Calculated

    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.
  22. Giants of Finance: Charles Dow

    Find out how this financial visionary helped everyday people enter the world of finance.
  23. Exploring The Current Account In The Balance Of Payments

    Learn how a country's current account balance reflects the country's economic health.
  24. Breaking Down The TSP Investment Funds

    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.
  25. Taking Shots At CAPM

    Find out why many investors think the capital asset pricing model is full of holes.
  26. Introduction To International CAPM

    ICAPM is one of several models used to determine the required return on an asset, discover its limitations and how to use it.
  27. 4 Behavioral Biases And How To Avoid Them

    Here are four common common behavioral biases for traders and how to minimize their effects on your portoflio.
  28. How To Become A Sophisticated Investor

    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.
  29. Cash: A Call Option With No Expiration Date

    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.
  30. Modern Portfolio Theory vs. Behavioral Finance

    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.
  31. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.
  32. Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
  33. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  34. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  35. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  36. 5 Tips For Diversifying Your Portfolio

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

    By following the strategies of the pros, even a beginner can learn to invest like an expert.
  38. 5 Nobel Prize-Winning Economic Theories You Should Know About

    Here are 5 prize-winning economic theories that you’ll want to be familiar with.
  39. Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
  40. Okun's Law: Economic Growth And Unemployment

    Learn about Okun's Law, why it is important and how it stood the test of time since first being published.
  41. Quantitative Analysis Of Hedge Funds

    Hedge fund analysis requires more than just the metrics used to analyze mutual funds.
  42. Cashing In On The Venture Capital Cycle

    Find out how VC firms make the market go round, and round and round.
  43. Choosing Between Dollar-Cost And Value Averaging

    These are two investing practices that seek to counter our natural inclination toward market timing by canceling out some of the risk.
  44. DCF Valuation: The Stock Market Sanity Check

    Calculate whether the market is paying too much for a particular stock.
  45. Fundamental Speed: The "Duck-And-Jab" Approach To Forex

    By using economic releases in a timely way, buyers can beat the "big players" without endless chart analysis.
  46. Can Good News Be A Signal To Sell?

    Sometimes positive announcements can mean bad news for a stock. Find out why.
  47. How To Evaluate A Micro-Cap Company

    Learn how to think big by investing in smaller stocks.
  48. Herding Tendencies Among Analysts

    Just like private investors, analysts are sometimes guilty of following the herd and failing to think independently.
  49. Understanding Social Impact Bonds

    Social impact bonds are powerful investment vehicles for the solving of social issues in a sustainable fashion.
  50. Equity Investing For The Buy-And-Holder

    The buy-and-hold investment strategy requires investors to disregard their emotional responses to market movements.
  51. Take On Risk With A Margin of Safety

    More common risk theories can lead to missed opportunities. Find out how margin of safety can propel your portfolio.
  52. Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  53. The Stock Market Loves The Olympics

    Over the last 26 Summer Olympics, the average rate of return of the DJIA during the games was an impressive 4%.
  54. Beta: Know The Risk

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

    Companies don't elect to leave an exchange so much as they're asked. Find out why.
  56. Overcoming Compounding's Dark Side

    Understanding how money is made and lost over time can help you improve your returns.
  57. Protecting Your Retirement Assets

    Your golden years are meant to be stress free. Keep them that way by protecting your assets.
  58. States That Spend A Lot On Fourth Of July Celebrations

    Whether it's fireworks, parades or festivals, Fourth of July celebrations in these states are often big and expensive.
  59. Shifting Focus To Sector Allocation

    Investing in sectors may trump international investments for providing diversification.
  60. The 3 Moral Types Managing Your Money

    Your financial fate is influenced very substantially by whether your broker or firm is immoral, amoral or moral.
  61. What The U.S. Needs To Do To Avoid Austerity Measures

    Here's a look at some of the methods the federal government is using to help economic recovery in the U.S.
  62. The 5 Best And Worst IPOs

    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.
  63. Low Vs. High-Risk Investments For Beginners

    Understanding risk is key to better investing.
  64. 8 Good Intentions With Bad Outcomes

    Here are some historical examples of companies that tried to do the right thing and failed miserably.
  65. Teaching Kids About Financial Literacy

    Financial literacy is an important subject to teach kids. It is now being taught in some schools.
  66. How Globalization Affects Developed Countries

    The increase in communications technology has companies competing in a global market.
  67. Is Stock Picking A Myth?

    Find out if mutual fund managers can successfully pick stocks or if you're better off with an index fund.
  68. How To Invest Like An Endowment

    Historically, Ivy League endowments have had a successful investment strategy. Will it work for you?
  69. 5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
  70. The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  71. The Lowdown On Penny Stocks

    Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless.
  72. Psychopaths In The Trading Room

    Learn about a study that compares the behaviors of some stockbrokers to that of certifiable psychopaths.
  73. Why U.S. Home Prices Rely On Supply And Demand

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

    LBOs are often presented as predatory by the media, but it really depends on which side of the deal you're on.
  75. 5 Stock Market Metrics Explained

    Learn how to evaluate a company's performance using metrics such as ROE, EPS and P/E ratio.
  76. Financial Careers Without A College Degree

    Credentials like on-the-job experience and licenses can be much more important for some financial careers.
  77. A Guide To Global Investment Performance Standards

    Is your investment management firm GIPS compliant? Learn more here.
  78. Bettering Your Portfolio With Alpha And Beta

    Increase your returns by creating the right balance of both these risk measures.
  79. Volatility's Impact On Market Returns

    Find out how to adjust your portfolio when the market fluctuates to increase your potential return.
  80. The Evolution Of The Gaming Market

    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.
  81. The Key To High Returns Is A Disciplined Strategy

    Learn about different investment strategies and how to pick the right one for you.
  82. The History Of The Modern Portfolio

    Learn how the writings of John Burr Williams and Harry Markowitz led to the creation of the investment portfolio.
  83. An Evaluation Of Emerging Markets

    Get the full story on this asset class before you write it off as too risky.
  84. The Basics Of Business Forecasting

    Discover the methods behind financial forecasts and the risks inherent when we seek to predict the future.
  85. Viewing The Market As Organized Chaos

    Find out how a cat and a ladybug prove markets are both random and efficient.
  86. Does Higher Risk Really Lead To Higher Returns?

    Learn about what is being dubbed the low-volatility anomaly, why it exists and what we can learn from it.
  87. What Investors Can Learn From M&A Payment Methods

    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.
  88. 5 Ways To Protect Your Portfolio From Volatility

    Sometimes the best defense is the lack of offense. Here are the best boring ways to protect your portfolio in volatile markets.
  89. Strategies For Making Sense Of The 2012 Forecasts

    Many investors are tempted to change their portfolio options when the 2012 predictions come out. Should you do the same?
  90. Beware Of Wall Street's Three Big Lies

    Don't get swindled into buying snake oil from Wall Street. Find out three lies that can lead to losing investments.
  91. How To Lie With Financial Statistics

    Can you really trust what the financial services industry puts out? We tell about some tricks that hide the truth.
  92. Key Players In Mergers And Acquisitions

    Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.
  93. 4 Types Of Money Market Yields

    We give you four equations to help figure out the yields on your investments.
  94. An Introduction To The Options Industry Council

    The Options Industry Council is an educational organization for options traders. We introduce you to the Council and the online tools available.
  95. An Introduction To Complementary Currencies

    There are alternatives to national currencies. Discover complementary currencies and how they work.
  96. The Importance Of Diversification

    Without this risk-reduction technique, your chance of loss will be unnecessarily high.
  97. 4 Misconceptions About Free Markets

    These fallacies have hounded free market economists since the days of Adam Smith.
  98. The Role Of Rebalancing

    A disciplined rebalancing practice can add a lot of value to a long-term strategic asset allocation program.
  99. 4 Other Wall Street Protests You've Never Heard Of

    We look at some past Wall Street protests and explain why Occupy Wall Street is quite different.
  100. The Evolution Of Banking

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