DEFINITION of 'Hot Hand'

The notion that because one has had a string of successes, he or she is more likely to have continued success. For example, if one flipped a (fair) coin and guessed correctly that it would land on heads three times in a row, it might be said that they have a "hot hand." Under such circumstances, a person believes that their odds of guessing which side the coin will land on next are greater than the 50% they actually are.

BREAKING DOWN 'Hot Hand'

The belief in a hot hand is one shared by many gamblers and investors alike, and is believed by psychologists to stem from the same source, the representative heuristic. For example, there is data to suggest that the decision of an investor to buy or sell a mutual fund depends largely on the track record of the fund manager, even though there is evidence that this factor is highly overrated. Hence, it would appear that such investors are making decisions based on whether or not they feel the fund managers are "hot" or not.

RELATED TERMS
  1. Gambler's Fallacy

    When an individual erroneously believes that the onset of a certain ...
  2. Hot Money

    1. Money that flows regularly between financial markets as investors ...
  3. Trillion Dollar Coin

    A trillion dollar coin is a theoretical coin that could be legally ...
  4. Gresham's Law

    A monetary principle stating that "bad money drives out good." ...
  5. Land Value

    The value of a piece of property, including both the value of ...
  6. Land Value Tax - LVT

    A tax on the value of a piece of land. Land value tax inherently ...
Related Articles
  1. Investing

    Uncover The Next Real Estate Hot Spot

    Real estate land speculation is a way to get in on a hot investment before a boom hits.
  2. Managing Wealth

    How to Keep a Land Investment From Going Bust

    Investing in land can yield big returns. But investors should consider their goals, as well as the following details, to make the deal a success.
  3. Investing

    There Are More Ways To Invest In Land Than You Think

    You don't have to have a huge amount of capital to invest in land. You have many other options, including land-related ETFs and ETNs.
  4. Investing

    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.
  5. Investing

    Guess? Stock To Trade Ex-Dividend Monday (GES)

    Guess? will send its dividend payment on June 24 to shareholders of record as of June 8.
  6. Investing

    Market Indicators: InvestoTrivia

    Quiz: can you guess which of these indicators is not real?
  7. Trading

    History Of Coinage In The U.S.

    From the barter system to commemorative coins, we look at the history of U.S. money.
  8. Insights

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
RELATED FAQS
  1. What is "hot money"?

    "Hot money" refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the ... Read Answer >>
  2. Sometimes investment banking firms allocate shares of hot issues to the personal ...

    The correct answer is a) Spinning is the act of selling hot issues to the personal accounts of corporate officers which in ... Read Answer >>
  3. Can I invest in gold or silver with my Roth IRA?

    Learn how you can purchase gold coins and bars with your Roth IRA, or how you can diversify part of your assets by purchasing ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center