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Aug 23Doug Smith

Buzzword of the Week: Garbatrage

Aug 23Doug Smith

Our youngest child just left home for school, so now, for the first time in over 20 years, it becomes my responsibility to take the garbage out each evening. Seeking solace in Investopedia’s long list of buzzwords, I’ve decided to rename what I do as Garbatrage.

Garbatrage is an increase in price and trading volume in a particular sector of the economy that occurs as a result of a recent takeover, which initiates a change in sentiment toward the sector. Garbatrage is also known as “rumortrage”.

Garbatrage is usually used with firms that are not directly related to the takeover. Speculators feel that the initial takeover is a precursor to more takeovers within the sector. Proponents of behavioral finance theory would view this psychological impact as evidence that supports their theory.

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