Cockroach Theory


Glossary Editor
Cockroach Theory refers to the idea that if one cockroach is seen in a house, there are almost inevitably many more hidden away, ready to emerge without warning. In financial markets, the cockroach is bad financial news. In other words, if one piece of bad news is revealed, there is likely to be more bad news which has yet to be revealed. In some cases, the bad news is about an individual company. Generally, companies are hesitant to reveal bad news to their investors and shareholders, and therefore do all they can to fix problems before they must announce. In other cases, the bad news is something the failure of one company, which could mean that many other companies in the same industry may have similar issues.