Hot Hand

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. Gresham's Law

    A monetary principle stating that "bad money drives out good." ...
  2. Land Value Tax - LVT

    A tax on the value of a piece of land. Land value tax inherently ...
  3. Hot Money

    1. Money that flows regularly between financial markets as investors ...
  4. Bullion Coins

    Coins made from precious metals that are generally used for investment ...
  5. Mint

    The primary producer of a country's coin currency. The mint has ...
  6. Krugerrand Gold Coin

    A gold coin minted by the Republic of South Africa. Krugerrand ...
Related Articles
  1. 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.
  2. Investing Basics

    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.
  3. Fundamental Analysis

    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.
  4. Stock Analysis

    Guess May Be Getting Its House In Order

    Often-volatile Guess is back on the way up with an encouraging second quarter report.
  5. Economics

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  6. Personal Finance

    10 Things You Probably Didn't Know About The Money In Your Wallet

    Here are some fun and interesting facts about the money that you use on a day-to-day basis.
  7. Stock Analysis

    One Cheap California Real Estate Play

    Believe it or not there is a real estate company in California that, based on recent developments, is a deep bargain for patient investors.
  8. Investing Basics

    Removing The Barriers To Successful Investing

    Learn how to stop using emotion and bad habits to make your stock picks.
  9. Forex Education

    7 Currency Blunders You Could Cash In On

    The government has made its share of mistakes when it comes to printing money, and the results are collector's items.
  10. Stock Analysis

    Cashing In On Low Land Prices

    Land companies are trading at steep discounts as investors associate them with real estate. Smart investors can find bargains here.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What are some common markets where notional value is used?

    Find out more about the notional value of securities and which markets commonly use the notional value to indicate the total ... Read Answer >>
  4. How do hedge funds use leverage?

    Learn how hedge funds use leverage techniques such as margin, credit lines and financial derivatives to increase return on ... Read Answer >>
  5. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting ... Read Answer >>
  6. If we only have 2 months to make the most money with $100,000, what stocks should ...

Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center