Fun-ancial ज्ञान: What is Cockroach Theory of Dalal Street | Jagran Business- Watch Video

According to the cockroach theory, unexpectedly bad news from a company is probably a sign that there is more bad news lurking around the corner. The name comes from the idea that the presence of one cockroach in plain sight probably signals the existence of many others that have not yet been discovered. 

The cockroach idea can be applied to an entire sector of the economy. For instance, if one company reports a problem, it is reasonable to assume that the underlying cause may be having some effect on the entire industry. As a result, over time, additional problems may be reported elsewhere. As a result, a bad report from one business might start a selloff that spreads throughout an entire sector. When an issue is eventually brought to the attention of the entire industry, this may also lead to the imposition of greater government regulation, which tends to increase costs and hence cause a further decrease in earnings.