Dead Cat Bounce

In investing, a “dead cat bounce” is a brief spike in market rates following a major decline. The bounce is normally caused by investors who rush to purchase securities when they believe rates are as low as they will get in hopes of profiting off the subsequent rebound. The rise in rates caused by the dead cat bounce effect is typically very small compared to the rate decline that led up to it.

The term is derived from a somewhat morbid market theory which states that even a dead cat will bounce if dropped from high enough.

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Daniel Dreier is editor and personal finance expert at moneyland.ch.

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