DEFINITION of 'Speculative Flow'

The movement of speculative capital between different assets or areas of the economy. Speculative flow can increase the value of an asset due to increased investor demand.

BREAKING DOWN 'Speculative Flow'

For example, assume that investors believe the technology sector will outperform other sectors in the economy over the next year. In this case, many investors may wish to move their speculative capital from other areas of the market into the technology sector. If this occurs, speculative technology stock prices will increase.

Speculative flow is often attributed to above-average levels of volatility and risk, so investors will often have a hedge strategy in place to limit potential losses.

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