Section A: Introduction
Now a day, investment is one of the most important variables in economics. By investment, economists mean the production of goods that will be used to produce other goods, wherein decision to purchase stock or bonds are thought as investment. An investment theory is a concept based on different factors processing of invests to determine how to choosing the right investments for a particular goal or purpose. When it comes to investing, there is no shortage of investment theories can be applied it to makes the markets tick.
Odd Lot Theory is contrarian strategy based of a very simple form of technical analysis which measuring odd lot sales. An odd-lot trade is one of less than 100 shares and only small investors tend to engage in odd-lot transactions How successful an investor or trader following the theory is depends heavily on whether the investor checks the fundamentals of companies that the theory points toward or simply buys blindly. Small investors are not going to be right or wrong all the time, so it is important to distinguish odd lot sales that are occurring from a low-risk tolerance from odd lot sales that are due to bigger problems.
Individual investors are more mobile than the big funds and thus can react to severe news faster, so odd lot sales can actually be a precursor to a wider sell-off in a failing stock instead of just a mistake on the part of minor investors. The odd-lot trader is on the correct path as the market is going up that is selling off part of the portfolio in an up market by buy low and sell high. This net selling posture is reflecting by declining odd-lot index, which is purchase-to-sales ratio. However, as the market continues upward, the odd-lot trader suddenly thinks he or she sees an opportunity for a killing in the market and becomes a very strong net buyer.
The Efficient Market Hypothesis (EMH) states