Catalyst (Investing)

Definition

The term catalyst refers to a disclosure that significantly impacts the value of a security.  Catalysts can positively or negatively affect a security's value.

Explanation

Also referred to as a catalyst event, a catalyst is information that can cause investors to swiftly change their valuation of a security.  Oftentimes used when describing events impacting the value of equities, the term is also used when describing different types of information, including:

  • A significantly different product offering.
  • Comments made by one of the officers of the company, such as the CEO.
  • An announcement that a company is restructuring its operations, or an officer is leaving the company.
  • The introduction of new legislation, or the disclosure of lawsuits, that could affect the company's earnings.
  • An earnings report, or revelation, indicating the company's profitability will increase or decrease significantly going forward.

While certain announcements may change the fundamentals of the company's stock, such as an earnings report, a catalyst may also affect investor sentiment, such as a change in leadership.  In either case, the value placed on the stock by investors will shift significantly.

Related Terms

market crash, dot-com bubble, black swan event, economic bubble, gray swan event