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Finance GlossaryAnchoring and Adjustment
Anchoring and Adjustment
Definition of Anchoring and Adjustment
Anchoring is a bias that drives people to make decisions that are based on (anchored to) pre-existing notions, ideas, and suggestions that may or may not be true.
Adjustments around anchoring are common as it becomes a starting point for many when it comes to decision-making.
For example, someone is anchored to a financial model or strategy. They may choose to use the anchor in situations where it may not fit and as a result, may end up getting an unfavorable outcome.
Adjustments around anchoring are common as it becomes a starting point for many when it comes to decision-making.
For example, someone is anchored to a financial model or strategy. They may choose to use the anchor in situations where it may not fit and as a result, may end up getting an unfavorable outcome.
Related Terms
Deferred Tax
The term deferred tax in a financial statement is used to refer to future tax payments in the case of temporary differences, a situation where an asset or liability on the balance sheet is realised but is taxable in the future.
Common examples of deferred tax include line items such as employee bonus or PF contributions, depreciation of fixed assets, net losses, and others.
Common examples of deferred tax include line items such as employee bonus or PF contributions, depreciation of fixed assets, net losses, and others.
Market Maker
A market maker is an individual or a firm that continuously quotes bid (buy) and ask (sell) prices in order to provide liquidity and ensure smooth trading. They act as intermediaries, buying from sellers and selling to buyers from their own inventory, which facilitates smooth, efficient trading and reduces price volatility for other investors. This role is generally played by financial institutions like brokerage firms or investment banks.
Lock In
Lock-in is the period during which you can not sell shares or other financial instruments. The purpose of a lock-in is to ensure that the price and liquidity of the instrument do not take a sudden nosedive. Lock-in is commonly applied to shares held by promoters or major shareholders. You may have heard the term while investing in mutual funds as well, where it is used in reference to close-ended funds and ELSS funds.
Unsystematic Risk
Unsystematic risk is the risk specific to a company or industry and not the overall market. It includes factors such as management decisions, labour strikes, or product failures. For example, a lawsuit affecting only one pharmaceutical company represents unsystematic risk and can be reduced through diversification.
Cash Contract
A cash contract is an agreement between two parties in which the delivery of goods is involved at a predetermined price and date. Typically, bulk buyers like big companies enter into cash contracts on the spot price of a commodity.
These companies aren’t in the business of speculation. As a result, the delivery of goods is always involved in cash contracts, unlike futures where the contract can be settled with cash without taking delivery.
These companies aren’t in the business of speculation. As a result, the delivery of goods is always involved in cash contracts, unlike futures where the contract can be settled with cash without taking delivery.
Ex-Dividend Date
The ex-dividend date is the trading day on and after which a new buyer of the stock is not entitled to any dividends. Most traders say that a stock has gone ex-dividend when this happens.
Traditionally, the ex-dividend date is set a day before the record date when a company evaluates its records for existing shareholders. If a trader buys a stock that has gone ex-dividend from a seller, the one who'll get dividends is the seller.
Traditionally, the ex-dividend date is set a day before the record date when a company evaluates its records for existing shareholders. If a trader buys a stock that has gone ex-dividend from a seller, the one who'll get dividends is the seller.
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