Flashcards
(1599 cards)
1
Q
A priori probability
A
A probability based on logical analysis rather than on observation or personal judgment
2
Q
Abandonment option
A
The ability to terminate an investment at some future time if the financial results are disappointing.
3
Q
Abnormal return
A
The amount by which a security’s actual return differs from its expected return, given the security’s risk and the market’s return.
4
Q
Absolute advantage
A
A country’s ability to produce a good or service at a lower absolute cost than its trading partner.
5
Q
Absolute dispersion
A
The amount of variability present without comparison to any reference point or benchmark.
6
Q
Absolute frequency
A
The actual number of observations counted for each unique value of the variable (also called raw frequency).
7
Q
Accelerated book build
A
An offering of securities by an investment bank acting as principal that is accomplished in only one or two days.
8
Q
Accelerated methods
A
Depreciation methods that allocate a relatively large proportion of the cost of an asset to the early years of the asset’s useful life.
9
Q
Accounting costs
A
Monetary value of economic resources used in performing an activity. These can be explicit, out-of-pocket, current payments, or an allocation of historical payments (depreciation)
for resources. They do not include implicit opportunity costs.
10
Q
Accounting profit
A
Income as reported on the income statement, in accordance with prevailing accounting standards, before the provisions for income tax expense. Also called income before taxes or
pretax income.
11
Q
Accounts payable
A
Amounts that a business owes to its vendors for goods and services that were purchased from them but which have not yet been paid.
12
Q
Accrued expenses
A
Liabilities related to expenses that have been incurred but not yet paid as of the end of an accounting period—an example of an accrued expense is rent that has been incurred but
not yet paid, resulting in a liability “rent payable.” Also called accrued liabilities.
13
Q
Accrued interest
A
Interest earned but not yet paid.
14
Q
Acquisition method
A
A method of accounting for a business combination where the acquirer is required to measure each identifiable asset and liability at fair value. This method was the result of a joint
project of the IASB and FASB aiming at convergence in standards for the accounting of business combinations.
15
Q
Action lag
A
Delay from policy decisions to implementation.
16
Q
Active investment
A
An approach to investing in which the investor seeks to outperform a given benchmark.
17
Q
Active return
A
The return on a portfolio minus the return on the portfolio’s benchmark.
18
Q
Activity ratios
A
Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory. Also called asset utilization ratios or
operating efficiency ratios.
19
Q
Add-on rates
A
Bank certificates of deposit, repos, and indexes such as Libor and Euribor are quoted on an add-on rate basis (bond equivalent yield basis).
20
Q
Addition rule for probabilities
A
A principle stating that the probability that A or B occurs (both occur) equals the probability that A occurs, plus the probability that B occurs, minus the probability that both A and B occur.
21
Q
Agency bond
A
Quasi-government bondA bond issued by an entity that is either owned or sponsored by a national government. Also called agency bond.
22
Q
Agency costs
A
Costs associated with the conflict of interest present between principals and agents when a company is managed by non-owners. Agency costs result from the inherent conflicts of
interest between managers, bondholders, and equity owners.
23
Q
Agency costs of debt
A
Costs arising from conflicts of interest between managers and debtholders.
24
Q
Agency costs of equity
A
The smaller the stake managers have in the company, the less their share in bearing the cost of excessive perquisite consumption—consequently, the less their desire to give their best efforts in running the company.
25
Agency RMBS
In the United States, securities backed by residential mortgage loans and guaranteed by a federal agency or guaranteed by either of the two GSEs (Fannie Mae and Freddie Mac).
26
Aggregate demand
The quantity of goods and services that households, businesses, government, and non-domestic customers want to buy at any given level of prices.
27
Aggregate demand curve
Inverse relationship between the price level and real output.
28
Aggregate income
The value of all the payments earned by the suppliers of factors used in the production of goods and services.
29
Aggregate output
The value of all the goods and services produced during a specified period.
30
Aggregate supply
The quantity of goods and services producers are willing to supply at any given level of price.
31
Aggregate supply curve
The level of domestic output that companies will produce at each price level.
32
All-or-nothing (AON) orders
An order that includes the instruction to trade only if the trade fills the entire quantity (size) specified.
33
Allocationally efficient
A characteristic of a market, a financial system, or an economy that promotes the allocation of resources to their highest value uses.
34
Alternative data
Non-traditional data types generated by the use of electronic devices, social media, satellite and sensor networks, and company exhaust.
35
Alternative hypothesis
The hypothesis that is accepted if the null hypothesis is rejected.
36
Alternative investment markets
Market for investments other than traditional securities investments (i.e., traditional common and preferred shares and traditional fixed income instruments). The term usually
encompasses direct and indirect investment in real estate (including timberland and farmland) and commodities (including precious metals); hedge funds, private equity, and other
investments requiring specialized due diligence.
37
Alternative trading systems
Trading venues that function like exchanges but that do not exercise regulatory authority over their subscribers except with respect to the conduct of the subscribers’ trading in their
trading systems. Also called electronic communications networks or multilateral trading facilities.
38
American depository receipt
A US dollar-denominated security that trades like a common share on US exchanges.
39
American depository share
The underlying shares on which American depository receipts are based. They trade in the issuing company’s domestic market.
40
American-style
Type of option contract that can be exercised at any time up to the option’s expiration date.
41
Amortisation
The process of allocating the cost of intangible long-term assets having a finite useful life to accounting periods; the allocation of the amount of a bond premium or discount to the
periods remaining until bond maturity.
42
Amortised cost
The historical cost (initially recognised cost) of an asset, adjusted for amortisation and impairment.
43
Amortizing bond
Bond with a payment schedule that calls for periodic payments of interest and repayments of principal.
44
Amortizing loans
Loans with a payment schedule that calls for periodic payments of interest and repayments of principal.
45
Analysis of variance (ANOVA)
The analysis that breaks the total variability of a dataset (such as observations on the dependent variable in a regression) into components representing different sources of variation.
With reference to regression, ANOVA provides the inputs for an F -test of the significance of the regression as a whole, as well as the inputs for the coefficient of determination and
the standard error of the estimate.
46
Analytical duration
The use of mathematical formulas to estimate the impact of benchmark yield-to-maturity changes on bond prices.
47
Anchoring and adjustment bias
An information-processing bias in which the use of a psychological heuristic influences the way people estimate probabilities.
48
Annual percentage rate
The cost of borrowing expressed as a yearly rate.
49
Annuity
A finite set of level sequential cash flows.
50
Annuity due
An annuity having a first cash flow that is paid immediately.
51
Anomalies
Apparent deviations from market efficiency.
52
Antidilutive
With reference to a transaction or a security, one that would increase earnings per share (EPS) or result in EPS higher than the company’s basic EPS—antidilutive securities are not
included in the calculation of diluted EPS.
53
Arbitrage
1) The simultaneous purchase of an undervalued asset or portfolio and sale of an overvalued but equivalent asset or portfolio, in order to obtain a riskless profit on the price
differential. Taking advantage of a market inefficiency in a risk-free manner. 2) The condition in a financial market in which equivalent assets or combinations of assets sell for two
different prices, creating an opportunity to profit at no risk with no commitment of money. In a well-functioning financial market, few arbitrage opportunities are possible. 3) A
risk-free operation that earns an expected positive net profit but requires no net investment of money.
54
Arbitrage-free pricing
The overall process of pricing derivatives by arbitrage and risk neutrality. Also called the principle of no arbitrage .
55
Arbitrageurs
Traders who engage in arbitrage. See arbitrage .
56
Arithmetic mean
The sum of the observations divided by the number of observations.
57
Artificial intelligence
Computer systems that exhibit cognitive and decision-making ability comparable (or superior) to that of humans.
58
Ask
The price at which a dealer or trader is willing to sell an asset, typically qualified by a maximum quantity (ask size). See offer.
59
Ask size
The maximum quantity of an asset that pertains to a specific ask price from a trader. For example, if the ask for a share issue is $30 for a size of 1,000 shares, the trader is offering to
sell at $30 up to 1,000 shares.
60
Asset allocation
The process of determining how investment funds should be distributed among asset classes.
61
Asset-backed securities
A type of bond issued by a legal entity called a special purpose entity (SPE) on a collection of assets that the SPE owns. Also, securities backed by receivables and loans other than
mortgages.
62
Asset-based valuation models
Valuation based on estimates of the market value of a company’s assets.
63
Asset beta
The unlevered beta; which reflects the business risk of the assets; the assets’ systematic risk.
64
Asset class
A group of assets that have similar characteristics, attributes, and risk–return relationships.
65
Asset swap
Converts the periodic fixed coupon of a specific bond to an MRR plus or minus a spread.
66
Asset utilization ratios
Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory.
67
Assets
Resources controlled by an enterprise as a result of past events and from which future economic benefits to the enterprise are expected to flow.
68
Assignment of accounts receivable
The use of accounts receivable as collateral for a loan.
69
Asymmetric information
The differential of information between corporate insiders and outsiders regarding the company’s performance and prospects. Managers typically have more information about the
company’s performance and prospects than owners and creditors.
70
At the money
An option in which the underlying’s price equals the exercise price.
71
Auction
A type of bond issuing mechanism often used for sovereign bonds that involves bidding.
72
Autarkic price
The price of a good or service in an autarkic economy.
73
Autarky
A state in which a country does not trade with other countries.
74
Automatic stabilizer
A countercyclical factor that automatically comes into play as an economy slows and unemployment rises.
75
Availability bias
An information-processing bias in which people take a heuristic approach to estimating the probability of an outcome based on how easily the outcome comes to mind.
76
Available-for-sale
Under US GAAP, debt securities not classified as either held-to-maturity or held-for-trading securities. The investor is willing to sell but not actively planning to sell. In general,
available-for-sale debt securities are reported at fair value on the balance sheet, with unrealized gains included as a component of other comprehensive income.
77
Average fixed cost
Total fixed cost divided by quantity produced.
78
Average life
Weighted average lifeA measure that gives investors an indication of how long they can expect to hold the MBS before it is paid off; the convention-based average time to receipt of
all principal repayments. Also called average life.
79
Average product
Measures the productivity of inputs on average and is calculated by dividing total product by the total number of units for a given input that is used to generate that output.
80
Average revenue
Total revenue divided by quantity sold.
81
Average total cost
Total cost divided by quantity produced.
82
Average variable cost
Total variable cost divided by quantity produced.
83
Back-testing
With reference to portfolio strategies, the application of a strategy’s portfolio selection rules to historical data to assess what would have been the strategy’s historical performance.
84
Backfill bias
A bias introduced if a fund backfills its past performance data to the database when it first starts reporting actual performance.
85
Backtesting
With reference to portfolio strategies, the application of a strategy’s portfolio selection rules to historical data to assess what would have been the strategy’s historical performance.
86
Backup line of credit
A type of credit enhancement provided by a bank to an issuer of commercial paper to ensure that the issuer will have access to sufficient liquidity to repay maturing commercial
paper if issuing new paper is not a viable option.
87
Backwardation
A condition in the futures markets in which the spot price exceeds the futures price, the forward curve is downward sloping, and the convenience yield is high.
88
Balance of payments
A double-entry bookkeeping system that summarizes a country’s economic transactions with the rest of the world for a particular period of time, typically a calendar quarter or year.
89
Balance of trade deficit
When the domestic economy is spending more on non-domestic goods and services than non-domestic economies are spending on domestic goods and services.
90
Balance sheet
The financial statement that presents an entity’s current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and
equity claims), as of a particular point in time (the date of the balance sheet). Also called statement of financial position or statement of financial condition.
91
Balance sheet ratios
Financial ratios involving balance sheet items only.
92
Balanced
With respect to a government budget, one in which spending and revenues (taxes) are equal.
93
Balloon payment
Large payment required at maturity to retire a bond’s outstanding principal amount.
94
Bar chart
A chart for plotting the frequency distribution of categorical data, where each bar represents a distinct category and each bar's height is proportional to the frequency of the
corresponding category. In technical analysis, a bar chart that plots four bits of data for each time interval—the high, low, opening, and closing prices. A vertical line connects the
high and low prices. A cross-hatch left indicates the opening price and a cross-hatch right indicates the closing price.
95
Barter economy
An economy where economic agents as house-holds, corporations, and governments “pay” for goods and services with another good or service.
96
Base-rate neglect
A type of representativeness bias in which the base rate or probability of the categorization is not adequately considered.
97
Base rates
The reference rate on which a bank bases lending rates to all other customers.
98
Basic EPS
Net earnings available to common shareholders (i.e., net income minus preferred dividends) divided by the weighted average number of common shares outstanding.
99
Basis point
Used in stating yield spreads, one basis point equals one-hundredth of a percentage point, or 0.01%.
100
Basket of listed depository receipts
An exchange-traded fund (ETF) that represents a portfolio of depository receipts.
101
Bayes’ formula
The rule for updating the probability of an event of interest—given a set of prior probabilities for the event, information, and information given the event—if you receive new
information.
102
Bearer bonds
Bonds for which ownership is not recorded; only the clearing system knows who the bond owner is.
103
Bearish crossover
A technical analysis term that describes a situation where a short-term moving average crosses a longer-term moving average from above; this movement is considered bearish. A
death cross is a bearish crossover based on 50-day and 200-day moving averages.
104
Behavioral finance
A field of finance that examines the psychological variables that affect and often distort the investment decision making of investors, analysts, and portfolio managers.
105
Behind the market
Said of prices specified in orders that are worse than the best current price; e.g., for a limit buy order, a limit price below the best bid.
106
Benchmark
A comparison portfolio; a point of reference or comparison.
107
Benchmark issue
The latest sovereign bond issue for a given maturity. It serves as a benchmark against which to compare bonds that have the same features but that are issued by another type of
issuer.
108
Benchmark rate
Typically the yield-to-maturity on a government bond having the same or close to the same time-to-maturity.
109
Benchmark spread
The yield spread over a specific benchmark, usually measured in basis points.
110
Bernoulli random variable
A random variable having the outcomes 0 and 1.
111
Bernoulli trial
An experiment that can produce one of two outcomes.
112
Best bid
The highest bid in the market.
113
Best effort offering
An offering of a security using an investment bank in which the investment bank, as agent for the issuer, promises to use its best efforts to sell the offering but does not guarantee
that a specific amount will be sold.
114
Best-efforts offering
An ESG implementation approach that seeks to identify the most favorable companies in an industry based on ESG considerations.
115
Best offer
The lowest offer (ask price) in the market.
116
Beta
A measure of the sensitivity of a given investment or portfolio to movements in the overall market.
117
Bid
The price at which a dealer or trader is willing to buy an asset, typically qualified by a maximum quantity.
118
Bid–ask spread
The difference between the prices at which dealers will buy from a customer (bid) and sell to a customer (offer or ask). It is often used as an indicator of liquidity.
119
Bid–offer spread
The difference between the prices at which dealers will buy from a customer (bid) and sell to a customer (offer or ask). It is often used as an indicator of liquidity.
120
Bid size
The maximum quantity of an asset that pertains to a specific bid price from a trader.
121
Big Data
The vast amount of data being generated by industry, governments, individuals, and electronic devices that arises from both traditional and non-traditional data sources.
122
Bilateral loan
A loan from a single lender to a single borrower.
123
Bimodal
A distribution that has two most frequently occurring values.
124
Binomial model
A model for pricing options in which the underlying price can move to only one of two possible new prices.
125
Binomial random variable
The number of successes in n Bernoulli trials for which the probability of success is constant for all trials and the trials are independent.
126
Binomial tree
The graphical representation of a model of asset price dynamics in which, at each period, the asset moves up with probability p or down with probability (1 − p).
127
Bitcoin
A cryptocurrency using blockchain technology that was created in 2009.
128
Bivariate correlation
Pearson correlation A parametric measure of the relationship between two variables.
129
Block brokers
A broker (agent) that provides brokerage services for large-size trades.
130
Blockchain
A type of digital ledger in which information is recorded sequentially and then linked together and secured using cryptographic methods.
131
Blue chip
Widely held large market capitalization companies that are considered financially sound and are leaders in their respective industry or local stock market.
132
Bollinger Bands
A price-based technical analysis indicator consisting of a line representing the moving average, a higher line representing the moving average plus a set number of standard
deviations from the average (for the same number of periods as was used to calculate the moving average), and a lower line representing the moving average minus the same
number of standard deviations.
133
Bond
Contractual agreement between the issuer and the bondholders.
134
Bond equivalent yield
A calculation of yield that is annualized using the ratio of 365 to the number of days to maturity. Bond equivalent yield allows for the restatement and comparison of securities with
different compounding periods.
135
Bond indenture
The governing legal credit agreement, typically incorporated by reference in the prospectus. Also called trust deed.
136
Bond market vigilantes
Bond market participants who might reduce their demand for long-term bonds, thus pushing up their yields.
137
Bond yield plus risk premium approach
An estimate of the cost of common equity that is produced by summing the before-tax cost of debt and a risk premium that captures the additional yield on a company’s stock
relative to its bonds. The additional yield is often estimated using historical spreads between bond yields and stock yields.
138
Bonus issue of shares
A type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash.
139
Book building
Investment bankers’ process of compiling a “book” or list of indications of interest to buy part of an offering.
140
Book value
The net amount shown for an asset or liability on the balance sheet; book value may also refer to the company’s excess of total assets over total liabilities. Also called carrying
value.
141
Boom
An expansionary phase characterized by economic growth “testing the limits” of the economy.
142
Bootstrap
A resampling method that repeatedly draws samples with replacement of the selected elements from the original observed sample. Bootstrap is usually conducted by using
computer simulation and is often used to find standard error or construct confidence intervals of population parameters.
143
Bottom-up analysis
An investment selection approach that focuses on company-specific circumstances rather than emphasizing economic cycles or industry analysis.
144
Bottom-up analysis
An investment selection approach that focuses on company-specific circumstances rather than emphasizing economic cycles or industry analysis.
145
Box and whisker plot
A graphic for visualizing the dispersion of data across quartiles. It consists of a “box” with “whiskers” connected to the box.
146
Breakdown
A breakdown occurs when the price of an asset moves below a support level.
147
Breakeven point
The number of units produced and sold at which the company’s net income is zero (Revenues = Total cost); in the case of perfect competition, the quantity at which price, average
revenue, and marginal revenue equal average total cost.
148
Breakout
A breakout occurs when the price of an asset moves above a resistance level.
149
Bridge financing
Interim financing that provides funds until permanent financing can be arranged.
150
Broad money
Encompasses narrow money plus the entire range of liquid assets that can be used to make purchases.
151
Broker
1) An agent who executes orders to buy or sell securities on behalf of a client in exchange for a commission. 2) See futures commission merchants.
152
Broker–dealer
A financial intermediary (often a company) that may function as a principal (dealer) or as an agent (broker) depending on the type of trade.
153
Brokered market
A market in which brokers arrange trades among their clients.
154
Brownfield investment
Investing in existing infrastructure assets.
155
Bubble line chart
A line chart that uses varying-sized bubbles to represent a third dimension of the data. The bubbles are sometimes color-coded to present additional information.
156
Budget surplus/deficit
The difference between government revenue and expenditure for a stated fixed period of time.
157
Bullet bond
Bond in which the principal repayment is made entirely at maturity.
158
Bullish crossover
A technical analysis term that describes a situation where a short-term moving average crosses a longer-term moving average from below; this movement is considered bullish. A
golden cross is a bullish crossover based on 50-day and 200-day moving averages.
159
Business cycles
Are recurrent expansions and contractions in economic activity affecting broad segments of the economy.
160
Business risk
The risk associated with operating earnings. Operating earnings are uncertain because total revenues and many of the expenditures contributed to produce those revenues are
uncertain.
161
Buy-side firm
An investment management company or other investor that uses the services of brokers or dealers (i.e., the client of the sell side firms).
162
Buyback
A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash.
163
Call
An option that gives the holder the right to buy an underlying asset from another party at a fixed price over a specific period of time.
164
Call market
A market in which trades occur only at a particular time and place (i.e., when the market is called).
165
Call money rate
The interest rate that buyers pay for their margin loan.
166
Call option
An option that gives the holder the right to buy an underlying asset from another party at a fixed price over a specific period of time.
167
Call protection
The time during which the issuer of the bond is not allowed to exercise the call option.
168
Callable bond
A bond containing an embedded call option that gives the issuer the right to buy the bond back from the investor at specified prices on pre-determined dates.
169
Calmar ratio
A comparison of the average annual compounded return to the maximum drawdown risk.
170
Candlestick chart
A price chart with four bits of data for each time interval. A candle indicates the opening and closing price for the interval. The body of the candle is shaded if the opening price
was higher than the closing price, and the body is white (or clear) if the opening price was lower than the closing price. Vertical lines known as wicks or shadows extend from the
top and bottom of the candle to indicate, respectively, the high and low prices for the interval.
171
Cannibalization
Cannibalization occurs when an investment takes customers and sales away from another part of the company.
172
Cap rate
A metric by which real estate managers are often judged; the annual rent actually earned (net of any vacancies) divided by the price originally paid for the property.
173
Capacity
The ability of the borrower to make its debt payments on time.
174
Capital account
A component of the balance of payments account that measures transfers of capital.
175
Capital allocation line
(CAL) A graph line that describes the combinations of expected return and standard deviation of return available to an investor from combining the optimal portfolio of risky assets
with the risk-free asset.
176
Capital allocation process
The process that companies use for decision making on capital investments—those projects with a life of one year or longer.
177
Capital asset pricing model
(CAPM) An equation describing the expected return on any asset (or portfolio) as a linear function of its beta relative to the market portfolio.
178
Capital consumption allowance
A measure of the wear and tear (depreciation) of the capital stock that occurs in the production of goods and services.
179
Capital deepening investment
Increases the stock of capital relative to labor.
180
Capital expenditure
Expenditure on physical capital (fixed assets).
181
Capital light
Capital light businesses require little incremental investment in fixed assets or working capital to enable revenue growth.
182
Capital loss ratio
The percentage of capital in deals that have been realized below cost, net of any recovered proceeds, divided by total invested capital.
183
Capital market expectations
An investor’s expectations concerning the risk and return prospects of asset classes.
184
Capital market line
(CML) The line with an intercept point equal to the risk-free rate that is tangent to the efficient frontier of risky assets; represents the efficient frontier when a risk-free asset is
available for investment.
185
Capital market securities
Securities with maturities at issuance longer than one year.
186
Capital markets
Financial markets that trade securities of longer duration, such as bonds and equities.
187
Capital rationing
A capital rationing environment assumes that the company has a fixed amount of funds to invest.
188
Capital restrictions
Controls placed on foreigners’ ability to own domestic assets and/or domestic residents’ ability to own foreign assets.
189
Capital stock
The accumulated amount of buildings, machinery, and equipment used to produce goods and services.
190
Capital structure
The mix of debt and equity that a company uses to finance its business; a company’s specific mixture of long-term financing.
191
Carry
The net of the costs and benefits of holding, storing, or “carrying” an asset.
192
Carrying amount
The amount at which an asset or liability is valued according to accounting principles.
193
Carrying value
```
The net amount shown for an asset or liability on the balance sheet; book value may also refer to the company’s excess of total assets over total liabilities. For a bond, the purchase
price plus (or minus) the amortized amount of the discount (or premium).
```
194
Cartel
Participants in collusive agreements that are made openly and formally.
195
Cash collateral account
Form of external credit enhancement whereby the issuer immediately borrows the credit-enhancement amount and then invests that amount, usually in highly rated short-term
commercial paper.
196
Cash conversion cycle
A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to days of
inventory on hand + days of sales outstanding – number of days of payables. Also called net operating cycle.
197
Cash flow additivity principle
The principle that dollar amounts indexed at the same point in time are additive.
198
Cash flow from operating activities
The net amount of cash provided from operating activities.
199
Cash flow from operations
The net amount of cash provided from operating activities.
200
Cash flow yield
The internal rate of return on a series of cash flows.
201
Cash market securities
Money market securities settled on a “same day” or “cash settlement” basis.
202
Cash markets
Spot markets Markets in which assets are traded for immediate delivery.
203
Cash prices
Spot prices The price of an asset for immediately delivery.
204
Cash-settled forwards
Non-deliverable forwards Cash-settled forward contracts, used predominately with respect to foreign exchange forwards. Also called contracts for differences.
205
Catch-up clause
A clause in an agreement that favors the GP. For a GP who earns a 20% performance fee, a catch-up clause allows the GP to receive 100% of the distributions above the hurdle rate
until she receives 20% of the profits generated, and then every excess dollar is split 80/20 between the LPs and GP.
206
Categorical data
Values that describe a quality or characteristic of a group of observations and therefore can be used as labels to divide a dataset into groups to summarize and visualize (also called
qualitative data ).
207
CBOE Volatility Index (VIX)
A measure of near-term market volatility as conveyed by S&P 500 stock index option prices.
208
Central bank funds market
The market in which deposit-taking banks that have an excess reserve with their national central bank can lend money to banks that need funds for maturities ranging from
overnight to one year. Called the Federal or Fed funds market in the United States.
209
Central bank funds rate
Interest rate at which central bank funds are bought (borrowed) and sold (lent) for maturities ranging from overnight to one year. Called Federal or Fed funds rate in the United
States.
210
Central banks
The dominant bank in a country, usually with official or semi-official governmental status.
211
Central limit theorem
The theorem that states the sum (and the mean) of a set of independent, identically distributed random variables with finite variances is normally distributed, whatever distribution
the random variables follow.
212
Certificate of deposit
An instrument that represents a specified amount of funds on deposit with a bank for a specified maturity and interest rate. CDs are issued in various denominations and can be
negotiable or non-negotiable.
213
Change in polarity principle
A tenet of technical analysis that states that once a support level is breached, it becomes a resistance level. The same holds true for resistance levels: Once breached, they become
support levels.
214
Change of control put
A covenant giving bondholders the right to require the issuer to buy back their debt, often at par or at some small premium to par value, in the event that the borrower is acquired.
215
Character
The quality of a debt issuer’s management.
216
Chartist
An individual who uses charts or graphs of a security’s historical prices or levels to forecast its future trends.
217
Chi-square test of independence
A statistical test for detecting a potential association between categorical variables.
218
Classical cycle
Refers to fluctuations in the level of economic activity when measured by GDP in volume terms.
219
Classified balance sheet
A balance sheet organized so as to group together the various assets and liabilities into subcategories (e.g., current and noncurrent).
220
Clawback
A requirement that the general partner return any funds distributed as incentive fees until the limited partners have received back their initial investment and a percentage of the
total profit.
221
Clearing
The process by which the exchange verifies the execution of a transaction and records the participants’ identities.
222
Clearing instructions
Instructions that indicate how to arrange the final settlement (“clearing”) of a trade.
223
Clearinghouse
An entity associated with a futures market that acts as middleman between the contracting parties and guarantees to each party the performance of the other.
224
Closed economy
An economy that does not trade with other countries; an autarkic economy .
225
Closed-end fund
A mutual fund in which no new investment money is accepted. New investors invest by buying existing shares, and investors in the fund liquidate by selling their shares to other
investors.
226
Cluster sampling
A procedure that divides a population into subpopulation groups (clusters) representative of the population and then randomly draws certain clusters to form a sample.
227
Clustered bar chart
Grouped bar chartA bar chart for showing joint frequencies for two categorical variables (also known as a clustered bar chart).
228
Co-investing
In co-investing, the investor invests in assets indirectly through the fund but also possesses rights (known as co-investment rights) to invest directly in the same assets. Through coinvesting, an investor is able to make an investment alongside a fund when the fund identifies deals.
229
Code of ethics
An established guide that communicates an organization’s values and overall expectations regarding member behavior. A code of ethics serves as a general guide for how
community members should act.
230
Coefficient of determination
The percentage of the variation of the dependent variable that is explained by the independent variable. Also referred to as the “ R-squared” or “R2.”
231
Coefficient of variation
The ratio of a set of observations’ standard deviation to the observations’ mean value.
232
Cognitive cost
The effort involved in processing new information and updating beliefs.
233
Cognitive dissonance
The mental discomfort that occurs when new information conflicts with previously held beliefs or cognitions.
234
Cognitive errors
Behavioral biases resulting from faulty reasoning; cognitive errors stem from basic statistical, information-processing, or memory errors.
235
Coincident economic indicators
Turning points that are usually close to those of the overall economy; they are believed to have value for identifying the economy’s present state.
236
Collateral
Assets or financial guarantees underlying a debt obligation that are above and beyond the issuer’s promise to pay.
237
Collateral manager
Buys and sells debt obligations for and from the CDO’s portfolio of assets (i.e., the collateral) to generate sufficient cash flows to meet the obligations to the CDO bondholders.
238
Collateral trust bonds
Bonds secured by securities, such as common shares, other bonds, or other financial assets.
239
Collateralized bond obligations
A structured asset-backed security that is collateralized by a pool of bonds.
240
Collateralized debt obligation
Generic term used to describe a security backed by a diversified pool of one or more debt obligations.
241
Collateralized loan obligations
A structured asset-backed security that is collateralized by a pool of loans.
242
Collateralized mortgage obligation
A security created through the securitization of a pool of mortgage-related products (mortgage pass-through securities or pools of loans).
243
Collaterals
Assets or financial guarantees underlying a debt obligation that are above and beyond the issuer’s promise to pay.
244
Combination
A listing in which the order of the listed items does not matter.
245
Combination formula (binomial formula)
The number of ways that we can choose r objects from a total of n objects, when the order in which the r objects are listed does not matter, is nCr=(nr)=n!(n−r)! r!.
246
Commercial paper
A short-term, negotiable, unsecured promissory note that represents a debt obligation of the issuer.
247
Committed (Regular) lines of credit
A bank commitment to extend credit up to a pre-specified amount; the commitment is considered a short-term liability and is usually in effect for 364 days (one day short of a full
year).
248
Committed capital
The amount that the limited partners have agreed to provide to the private equity fund.
249
Commodity swap
A swap in which the underlying is a commodity such as oil, gold, or an agricultural product.
250
Common market
Level of economic integration that incorporates all aspects of the customs union and extends it by allowing free movement of factors of production among members.
251
Common shares
A type of security that represent an ownership interest in a company.
252
Common-size analysis
The restatement of financial statement items using a common denominator or reference item that allows one to identify trends and major differences; an example is an income
statement in which all items are expressed as a percent of revenue.
253
Common stock
Common shares A type of security that represent an ownership interest in a company.
254
Company analysis
Analysis of an individual company.
255
Comparable company
A company that has similar business risk, usually in the same industry and preferably with a single line of business.
256
Comparative advantage
A country’s ability to produce a good or service at a lower relative cost, or opportunity cost, than its trading partner.
257
Competitive strategy
A company’s plans for responding to the threats and opportunities presented by the external environment.
258
Complement
The event not-S , written S C , given the event S. Note that P (S ) + P (S C ) = 1.
259
Complements
Goods that tend to be used together; technically, two goods whose cross-price elasticity of demand is negative.
260
Complete markets
Informally, markets in which the variety of distinct securities traded is so broad that any desired payoff in a future state-of-the-world is achievable.
261
Component cost of capital
The rate of return required by suppliers of capital for an individual source of a company’s funding, such as debt or equity.
262
Compounding
The process of accumulating interest on interest.
263
Comprehensive income
The change in equity of a business enterprise during a period from nonowner sources; includes all changes in equity during a period except those resulting from investments by
owners and distributions to owners; comprehensive income equals net income plus other comprehensive income.
264
Conditional expected value
The expected value of a stated event given that another event has occurred.
265
Conditional pass-through covered bonds
Covered bonds that convert to pass-through securities after the original maturity date if all bond payments have not yet been made and the sponsor is in default.
266
Conditional probability
The probability of an event given (conditioned on) another event.
267
Conditional variances
The variance of one variable, given the outcome of another.
268
Confidence level
The complement of the level of significance.
269
Confirmation bias
A belief perseverance bias in which people tend to look for and notice what confirms their beliefs, to ignore or undervalue what contradicts their beliefs, and to misinterpret
information as support for their beliefs.
270
Confusion matrix
A type of contingency table used for evaluating the performance of a classification model.
271
Conservatism bias
A belief perseverance bias in which people maintain their prior views or forecasts by inadequately incorporating new information.
272
Consolidation
The movement of a stock’s price within a well-defined range of trading levels for a period of time. The price consolidates between a support level and a resistance level.
273
Constant-yield price trajectory
A graph that illustrates the change in the price of a fixed-income bond over time assuming no change in yield-to-maturity. The trajectory shows the “pull to par” effect on the price
of a bond trading at a premium or a discount to par value.
274
Constituent securities
With respect to an index, the individual securities within an index.
275
Consumer surplus
The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them.
276
Contango
A condition in the futures markets in which the spot price is lower than the futures price, the forward curve is upward sloping, and there is little or no convenience yield.
277
Contingency provision
Clause in a legal document that allows for some action if a specific event or circumstance occurs.
278
Contingency table
A tabular format that displays the frequency distributions of two or more categorical variables simultaneously and is used for finding patterns between the variables. A contingency
table for two categorical variables is also known as a two-way table.
279
Contingent claim
A security whose value is based on some other underlying security.
280
Contingent claims
Derivatives in which the payoffs occur if a specific event occurs; generally referred to as options.
281
Contingent convertible bonds
Bonds that automatically convert into equity if a specific event or circumstance occurs, such as the issuer’s equity capital falling below the minimum requirement set by the
regulators. Also called CoCos .
282
Continuation pattern
A type of pattern used in technical analysis to predict the resumption of a market trend that was in place prior to the formation of a pattern.
283
Continuous data
Data that can be measured and can take on any numerical value in a specified range of values.
284
Continuous random variable
A random variable for which the range of possible outcomes is the real line (all real numbers between −∞ and +∞) or some subset of the real line.
285
Continuous trading market
A market in which trades can be arranged and executed any time the market is open.
286
Continuously compounded return
The natural logarithm of 1 plus the holding period return, or equivalently, the natural logarithm of the ending price over the beginning price.
287
Contra account
An account that offsets another account.
288
Contract rate
Mortgage rate The interest rate on a mortgage loan; also called contract rate or note rate .
289
Contraction
The period of a business cycle after the peak and before the trough; often called a recession or, if exceptionally severe, called a depression.
290
Contraction risk
The risk that when interest rates decline, the security will have a shorter maturity than was anticipated at the time of purchase because borrowers refinance at the new, lower
interest rates.
291
Contractionary
Tending to cause the real economy to contract.
292
Contractionary fiscal policy
A fiscal policy that has the objective to make the real economy contract.
293
Contracts for differences
Non-deliverable forwards Cash-settled forward contracts, used predominately with respect to foreign exchange forwards. Also called contracts for differences.
294
Contribution margin
The amount available for fixed costs and profit after paying variable costs; revenue minus variable costs.
295
Controlling shareholders
A particular shareholder or block of shareholders holding a percentage of shares that gives them significant voting power.
296
Convenience sampling
A procedure of selecting an element from a population on the basis of whether or not it is accessible to a researcher or how easy it is for a researcher to access the element.
297
Convenience yield
A non-monetary advantage of holding an asset.
298
Conventional bond
Plain vanilla bondBond that makes periodic, fixed coupon payments during the bond’s life and a lump-sum payment of principal at maturity. Also called conventional bond.
299
Conventional cash flows
A conventional cash flow pattern is one with an initial outflow followed by a series of inflows.
300
Convergence
The tendency for differences in output per capita across countries to diminish over time. In technical analysis, the term describes the case when an indicator moves in the same
manner as the security being analyzed.
301
Conversion premium
The difference between the convertible bond’s price and its conversion value.
302
Conversion price
For a convertible bond, the price per share at which the bond can be converted into shares.
303
Conversion ratio
For a convertible bond, the number of common shares that each bond can be converted into.
304
Conversion value
For a convertible bond, the current share price multiplied by the conversion ratio.
305
Convertible bond
Bond that gives the bondholder the right to exchange the bond for a specified number of common shares in the issuing company.
306
Convertible preference shares
A type of equity security that entitles shareholders to convert their shares into a specified number of common shares.
307
Convexity adjustment
For a bond, one half of the annual or approximate convexity statistic multiplied by the change in the yield-to-maturity squared.
308
Core inflation
Refers to the inflation rate calculated based on a price index of goods and services except food and energy.
309
Corporate governance
The system of internal controls and procedures by which individual companies are managed.
310
Correlation
A measure of the linear relationship between two random variables.
311
Correlation coefficient
A number between −1 and +1 that measures the consistency or tendency for two investments to act in a similar way. It is used to determine the effect on portfolio risk when two
assets are combined.
312
Cost averaging
The periodic investment of a fixed amount of money.
313
Cost of capital
The cost of financing to a company; the rate of return that suppliers of capital require as compensation for their contribution of capital.
314
Cost of carry
Carry The net of the costs and benefits of holding, storing, or “carrying” an asset.
315
Cost of debt
The cost of debt financing to a company, such as when it issues a bond or takes out a bank loan; the rate of return required by a company’s bondholders.
316
Cost of equity
The rate of return required by a company’s common stockholders.
317
Cost of preferred stock
The cost to a company of issuing preferred stock; the dividend yield that a company must commit to pay preferred stockholders.
318
Cost structure
The mix of a company’s variable costs and fixed costs.
319
Counterparty risk
The risk that the other party to a contract will fail to honor the terms of the contract.
320
Coupon rate
The interest rate promised in a contract; this is the rate used to calculate the periodic interest payments.
321
Cournot assumption
Assumption in which each firm determines its profit-maximizing production level assuming that the other firms’ output will not change.
322
Covariance
A measure of the co-movement (linear association) between two random variables.
323
Covariance matrix
A matrix or square array whose entries are covariances; also known as a variance–covariance matrix.
324
Covenants
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The terms and conditions of lending agreements that the issuer must comply with; they specify the actions that an issuer is obligated to perform (affirmative covenant) or prohibited
from performing (negative covenant).
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325
Covered bond
Debt obligation secured by a segregated pool of assets called the cover pool. The issuer must maintain the value of the cover pool. In the event of default, bondholders have
recourse against both the issuer and the cover pool.
326
Covered bonds
Senior debt obligations issued by a financial institution and backed by a segregated pool of assets. Covered bond investors have recourse to both the underlying assets and the
financial institution.
327
Credit analysis
The evaluation of credit risk; the evaluation of the creditworthiness of a borrower or counterparty.
328
Credit default swap (CDS)
A type of credit derivative in which one party, the credit protection buyer who is seeking credit protection against a third party, makes a series of regularly scheduled payments to
the other party, the credit protection seller. The seller makes no payments until a credit event occurs.
329
Credit derivatives
A contract in which one party has the right to claim a payment from another party in the event that a specific credit event occurs over the life of the contract.
330
Credit enhancements
Provisions that may be used to reduce the credit risk of a bond issue.
331
Credit-linked coupon bond
Bond for which the coupon changes when the bond’s credit rating changes.
332
Credit-linked note (CLN)
Fixed-income security in which the holder of the security has the right to withhold payment of the full amount due at maturity if a credit event occurs.
333
Credit migration risk
The risk that a bond issuer’s creditworthiness deteriorates, or migrates lower, leading investors to believe the risk of default is higher. Also called downgrade risk.
334
Credit risk
The risk of loss caused by a counterparty’s or debtor’s failure to make a promised payment. Also called default risk.
335
Credit spread option
An option on the yield spread on a bond.
336
Credit tranching
A structure used to redistribute the credit risk associated with the collateral; a set of bond classes created to allow investors a choice in the amount of credit risk that they prefer to
bear.
337
Creditworthiness
The perceived ability of the borrower to pay its debt obligations in a timely manner; it represents the ability of a company to withstand adverse impacts on its cash flows.
338
Critical values
Values of the test statistic at which the decision changes from fail to reject the null hypothesis to reject the null hypothesis.
339
Cross-default
Covenant or contract clause that specifies a borrower is considered in default if they default on another debt obligation.
340
Cross-default provisions
Provisions whereby events of default, such as non-payment of interest on one bond, trigger default on all outstanding debt; implies the same default probability for all issues.
341
Cross-price elasticity of demand
The percentage change in quantity demanded for a given percentage change in the price of another good; the responsiveness of the demand for Product A that is associated with the
change in price of Product B.
342
Cross-sectional analysis
Analysis that involves comparisons across individuals in a group over a given time period or at a given point in time.
343
Cross-sectional data
A list of the observations of a specific variable from multiple observational units at a given point in time. The observational units can be individuals, groups, companies, trading
markets, regions, etc.
344
Crossing networks
Trading systems that match buyers and sellers who are willing to trade at prices obtained from other markets.
345
Crowding out
The thesis that government borrowing may divert private sector investment from taking place.
346
Cryptocurrency
An electronic medium of exchange that lacks physical form.
347
Cryptography
An algorithmic process to encrypt data, making the data unusable if received by unauthorized parties.
348
Cumulative absolute frequency
Cumulates (i.e., adds up) in a frequency distribution the absolute frequencies as one moves from the first bin to the last bin.
349
Cumulative distribution function
A function giving the probability that a random variable is less than or equal to a specified value.
350
Cumulative frequency distribution chart
A chart that plots either the cumulative absolute frequency or the cumulative relative frequency on the y-axis against the upper limit of the interval and allows one to see the number
or the percentage of the observations that lie below a certain value.
351
Cumulative preference shares
Preference shares for which any dividends that are not paid accrue and must be paid in full before dividends on common shares can be paid.
352
Cumulative relative frequency
A sequence of partial sums of the relative frequencies in a frequency distribution.
353
Cumulative voting
A voting process whereby shareholders can accumulate and vote all their shares for a single candidate in an election, as opposed to having to allocate their voting rights evenly
among all candidates.
354
Currencies
Monies issued by national monetary authorities.
355
Currency option bonds
Bonds that give bondholders the right to choose the currency in which they want to receive interest payments and principal repayments.
356
Currency swap
A swap in which each party makes interest payments to the other in different currencies.
357
Current account
A component of the balance of payments account that measures the flow of goods and services.
358
Current assets
Assets that are expected to be consumed or converted into cash in the near future, typically one year or less. Also called liquid assets .
359
Current cost
With reference to assets, the amount of cash or cash equivalents that would have to be paid to buy the same or an equivalent asset today; with reference to liabilities, the undiscounted amount of cash or cash equivalents that would be required to settle the obligation today.
360
Current government spending
With respect to government expenditures, spending on goods and services that are provided on a regular, recurring basis including health, education, and defense.
361
Current liabilities
Short-term obligations, such as accounts payable, wages payable, or accrued liabilities, that are expected to be settled in the near future, typically one year or less.
362
Current yield
The sum of the coupon payments received over the year divided by the flat price; also called the income or interest yield or running yield.
363
Curve duration
The sensitivity of the bond price (or the market value of a financial asset or liability) with respect to a benchmark yield curve.
364
Customs union
Extends the free trade area (FTA) by not only allowing free movement of goods and services among members, but also creating a common trade policy against nonmembers.
365
CVaR
Conditional VaR, a tail loss measure. The weighted average of all loss outcomes in the statistical distribution that exceed the VaR loss.
366
Cyclical
A cyclical company is one whose profits are strongly correlated with the strength of the overall economy.
367
Cyclical companies
Companies with sales and profits that regularly expand and contract with the business cycle or state of economy.
368
Daily settlement
Mark to marketThe revaluation of a financial asset or liability to its current market value or fair value.Marking to market
369
Daily settlement
Mark to market The revaluation of a financial asset or liability to its current market value or fair value.Marking to market
370
Dark pools
Alternative trading systems that do not display the orders that their clients send to them.
371
Data
A collection of numbers, characters, words, and text—as well as images, audio, and video—in a raw or organized format to represent facts or information.
372
Data mining
The practice of determining a model by extensive searching through a dataset for statistically significant patterns. Also called data snooping.
373
Data science
An interdisciplinary field that brings computer science, statistics, and other disciplines together to analyze and produce insights from Big Data.
374
Data snooping
The practice of determining a model by extensive searching through a dataset for statistically significant patterns.
375
Data table
see two-dimensional rectangular array .
376
Day order
An order that is good for the day on which it is submitted. If it has not been filled by the close of business, the order expires unfilled.
377
Days of inventory on hand
An activity ratio equal to the number of days in the period divided by inventory turnover over the period.
378
Dealers
A financial intermediary that acts as a principal in trades.
379
Dealing securities
Securities held by banks or other financial intermediaries for trading purposes.
380
Death cross
Bearish crossover A technical analysis term that describes a situation where a short-term moving average crosses a longer-term moving average from above; this movement is
considered bearish. A death cross is a bearish crossover based on 50-day and 200-day moving averages.
381
Debentures
Type of bond that can be secured or unsecured.
382
Debt rating
An independent measure of the quality and safety of a company’s debt based upon an analysis of the company’s ability to pay the promised cash flows in full and on time. It
includes an analysis of any indentures.
383
Debt-rating approach
A method for estimating a company’s before-tax cost of debt based on the yield on comparably rated bonds for maturities that closely match that of the company’s existing debt.
384
Debt tax shield
The tax benefit from interest paid on debt being tax deductible from income, equal to the marginal tax rate multiplied by the value of the debt.
385
Debt-to-assets ratio
A solvency ratio calculated as total debt divided by total assets.
386
Debt-to-capital ratio
A solvency ratio calculated as total debt divided by total debt plus total shareholders’ equity.
387
Debt-to-equity ratio
A solvency ratio calculated as total debt divided by total shareholders’ equity.
388
Deciles
Quantiles that divide a distribution into 10 equal parts.
389
Declaration date
The day that the corporation issues a statement declaring a specific dividend.
390
Decreasing returns to scale
When a production process leads to increases in output that are proportionately smaller than the increase in inputs.
391
Deductible temporary differences
Temporary differences that result in a reduction of or deduction from taxable income in a future period when the balance sheet item is recovered or settled.
392
Deep learning
Machine learning using neural networks with many hidden layers.
393
Deep learning nets
Machine learning using neural networks with many hidden layers.
394
Default probability
The probability that a borrower defaults or fails to meet its obligation to make full and timely payments of principal and interest, according to the terms of the debt security. Also
called default risk.
395
Default risk
The probability that a borrower defaults or fails to meet its obligation to make full and timely payments of principal and interest, according to the terms of the debt security. Also
called default probability.
396
Default risk premium
An extra return that compensates investors for the possibility that the borrower will fail to make a promised payment at the contracted time and in the contracted amount.
397
Defensive companies
Companies with sales and profits that have little sensitivity to the business cycle or state of the economy.
398
Defensive interval ratio
A liquidity ratio that estimates the number of days that an entity could meet cash needs from liquid assets; calculated as (cash + short-term marketable investments + receivables)
divided by daily cash expenditures.
399
Deferred coupon bond
Bond that pays no coupons for its first few years but then pays a higher coupon than it otherwise normally would for the remainder of its life. Also called split coupon bond.
400
Deferred income
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service.
401
Deferred revenue
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service.
402
Deferred tax assets
A balance sheet asset that arises when an excess amount is paid for income taxes relative to accounting profit. The taxable income is higher than accounting profit and income tax
payable exceeds tax expense. The company expects to recover the difference during the course of future operations when tax expense exceeds income tax payable.
403
Deferred tax liabilities
A balance sheet liability that arises when a deficit amount is paid for income taxes relative to accounting profit. The taxable income is less than the accounting profit and income
tax payable is less than tax expense. The company expects to eliminate the liability over the course of future operations when income tax payable exceeds tax expense.
404
Defined benefit pension plans
Plans in which the company promises to pay a certain annual amount (defined benefit) to the employee after retirement. The company bears the investment risk of the plan assets.
405
Defined contribution pension plans
Individual accounts to which an employee and typically the employer makes contributions during their working years and expect to draw on the accumulated funds at retirement.
The employee bears the investment and inflation risk of the plan assets.
406
Deflation
Negative inflation.
407
Degree of confidence
The probability that a confidence interval includes the unknown population parameter.
408
Degree of financial leverage
(DFL) The ratio of the percentage change in net income to the percentage change in operating income; the sensitivity of the cash flows available to owners when operating income changes.
409
Degree of operating leverage
(DOL) The ratio of the percentage change in operating income to the percentage change in units sold; the sensitivity of operating income to changes in units sold.
410
Degree of total leverage
The ratio of the percentage change in net income to the percentage change in units sold; the sensitivity of the cash flows to owners to changes in the number of units produced and
sold.
411
Degrees of freedom
The number of independent variables used in defining sample statistics, such as variance, and the probability distributions they measure.
412
Delta
The sensitivity of the derivative price to a small change in the value of the underlying asset.
413
Demand curve
Graph of the inverse demand function. A graph showing the demand relation, either the highest quantity willingly purchased at each price or the highest price willingly paid for
each quantity.
414
Demand function
A relationship that expresses the quantity demanded of a good or service as a function of own-price and possibly other variables.
415
Demand shock
A typically unexpected disturbance to demand, such as an unexpected interruption in trade or transportation.
416
Dependent
With reference to events, the property that the probability of one event occurring depends on (is related to) the occurrence of another event.
417
Dependent variable
The variable whose variation about its mean is to be explained by the regression; the left-side variable in a regression equation. Also referred to as the explained variable .
418
Depository bank
A bank that raises funds from depositors and other investors and lends it to borrowers.
419
Depository institutions
Commercial banks, savings and loan banks, credit unions, and similar institutions that raise funds from depositors and other investors and lend it to borrowers.
420
Depository receipt
A security that trades like an ordinary share on a local exchange and represents an economic interest in a foreign company.
421
Depreciation
The process of systematically allocating the cost of long-lived (tangible) assets to the periods during which the assets are expected to provide economic benefits.
422
Derivative pricing rule
A pricing rule used by crossing networks in which a price is taken (derived) from the price that is current in the asset’s primary market.
423
Derivatives
A financial instrument whose value depends on the value of some underlying asset or factor (e.g., a stock price, an interest rate, or exchange rate).
424
Descriptive statistics
Measures that summarize central tendency and spread variation in the data’s distribution.
425
Diffuse prior
The assumption of equal prior probabilities.
426
Diffusion index
Reflects the proportion of the index’s components that are moving in a pattern consistent with the overall index.
427
Diluted EPS
The EPS that would result if all dilutive securities were converted into common shares.
428
Diluted shares
The number of shares that would be outstanding if all potentially dilutive claims on common shares (e.g., convertible debt, convertible preferred stock, and employee stock options)
were exercised.
429
Diminishing balance method
An accelerated depreciation method, i.e., one that allocates a relatively large proportion of the cost of an asset to the early years of the asset’s useful life.
430
Diminishing marginal productivity
Describes a state in which each additional unit of input produces less output than previously.
431
Direct format
With reference to the cash flow statement, a format for the presentation of the statement in which cash flow from operating activities is shown as operating cash receipts less
operating cash disbursements. Also called direct method.
432
Direct investing
Occurs when an investor makes a direct investment in an asset without the use of an intermediary.
433
Direct method
Direct formatWith reference to the cash flow statement, a format for the presentation of the statement in which cash flow from operating activities is shown as operating cash
receipts less operating cash disbursements. Also called direct method.
434
Direct taxes
Taxes levied directly on income, wealth, and corporate profits.
435
Direct write-off method
An approach to recognizing credit losses on customer receivables in which the company waits until such time as a customer has defaulted and only then recognizes the loss.
436
Discount
To reduce the value of a future payment in allowance for how far away it is in time; to calculate the present value of some future amount. Also, the amount by which an instrument
is priced below its face (par) value.
437
Discount margin
Required margin.
438
Discount rates
In general, the interest rates used to calculate present values. In the money market, however, a discount rate is a specific type of quoted rate.
439
Discounted cash flow models
Valuation models that estimate the intrinsic value of a security as the present value of the future benefits expected to be received from the security.
440
Discouraged worker
A person who has stopped looking for a job or has given up seeking employment.
441
Discrete data
Numerical values that result from a counting process; therefore, practically speaking, the data are limited to a finite number of values.
442
Discrete random variable
A random variable that can take on at most a countable number of possible values.
443
Discriminatory pricing rule
A pricing rule used in continuous markets in which the limit price of the order or quote that first arrived determines the trade price.
444
Diseconomies of scale
Increase in cost per unit resulting from increased production.
445
Dispersion
The variability of a population or sample of observations around the central tendency.
446
Display size
The size of an order displayed to public view.
447
Disposition effect
As a result of loss aversion, an emotional bias whereby investors are reluctant to dispose of losers. This reluctance results in an inefficient and gradual adjustment to deterioration in fundamental value.
448
Distributed ledger
A type of database that may be shared among entities in a network.
449
Distributed ledger technology
Technology based on a distributed ledger.
450
Divergence
In technical analysis, a term that describes the case when an indicator moves differently from the security being analyzed.
451
Diversification ratio
The ratio of the standard deviation of an equally weighted portfolio to the standard deviation of a randomly selected security.
452
Dividend
A distribution paid to shareholders based on the number of shares owned.
453
Dividend discount model
(DDM) A present value model that estimates the intrinsic value of an equity share based on the present value of its expected future dividends.
454
Dividend payout ratio
The ratio of cash dividends paid to earnings for a period.
455
Divisor
```
A number (denominator) used to determine the value of a price return index. It is initially chosen at the inception of an index and subsequently adjusted by the index provider, as
necessary, to avoid changes in the index value that are unrelated to changes in the prices of its constituent securities.
```
456
Doji
In the Japanese terminology used in candlestick charting, the doji signifies that after a full day of trading, the positive price influence of buyers and the negative price influence of
sellers exactly counteracted each other—with opening and closing prices that are virtually equal—which suggests that the market under analysis is in balance.
457
Domestic content provisions
Stipulate that some percentage of the value added or components used in production should be of domestic origin.
458
Double bottom
In technical analysis, a reversal pattern that is formed when the price reaches a low, rebounds, and then declines back to the first low level. A double bottom is used to predict a
change from a downtrend to an uptrend.
459
Double coincidence of wants
A prerequisite to barter trades, in particular that both economic agents in the transaction want what the other is selling.
460
Double declining balance depreciation
An accelerated depreciation method that involves depreciating the asset at double the straight-line rate. This rate is multiplied by the book value of the asset at the beginning of the
period (a declining balance) to calculate depreciation expense.
461
Double top
In technical analysis, a reversal pattern that is formed when an uptrend reverses twice at roughly the same high price level. A double top is used to predict a change from an uptrend to a downtrend.
462
Down transition probability
The probability that an asset’s value moves down in a model of asset price dynamics.
463
Downgrade risk
The risk that a bond issuer’s creditworthiness deteriorates, or migrates lower, leading investors to believe the risk of default is higher. Also called credit migration risk.
464
Downside risk
Risk of incurring returns below a specified value.
465
Downtrend
A pattern that occurs when the price of an asset moves lower over a period of time.
466
Drag on liquidity
When receipts lag, creating pressure from the decreased available funds.
467
Drawdown
A percentage peak-to-trough reduction in net asset value.
468
Dual-currency bonds
Bonds that make coupon payments in one currency and pay the par value at maturity in another currency.
469
DuPont analysis
An approach to decomposing return on investment, e.g., return on equity, as the product of other financial ratios.
470
Duration
A measure of the approximate sensitivity of a security to a change in interest rates (i.e., a measure of interest rate risk).
471
Duration gap
A bond’s Macaulay duration minus the investment horizon.
472
Dutch Book Theorem
A result in probability theory stating that inconsistent probabilities create profit opportunities.
473
Early repayment option
Prepayment option Contractual provision that entitles the borrower to prepay all or part of the outstanding mortgage principal prior to the scheduled due date when the principal
must be repaid. Also called early repayment option .
474
Earnings per share
The amount of income earned during a period per share of common stock.
475
Earnings surprise
The portion of a company’s earnings that is unanticipated by investors and, according to the efficient market hypothesis, merits a price adjustment.
476
Economic costs
All the remuneration needed to keep a productive resource in its current employment or to acquire the resource for productive use; the sum of total accounting costs and implicit opportunity costs.
477
Economic indicator
A variable that provides information on the state of the overall economy.
478
Economic loss
The amount by which accounting profit is less than normal profit.
479
Economic profit
Equal to accounting profit less the implicit opportunity costs not included in total accounting costs; the difference between total revenue (TR) and total cost (TC). Also called
abnormal profit or supernormal profit .
480
Economic stabilization
Reduction of the magnitude of economic fluctuations.
481
Economic union
Incorporates all aspects of a common market and in addition requires common economic institutions and coordination of economic policies among members.
482
Economies of scale
Reduction in cost per unit resulting from increased production.
483
Effective annual rate
The amount by which a unit of currency will grow in a year with interest on interest included.
484
Effective convexity
A curve convexity statistic that measures the secondary effect of a change in a benchmark yield curve on a bond’s price.
485
Effective duration
The sensitivity of a bond’s price to a change in a benchmark yield curve.
486
Effective interest rate
The borrowing rate or market rate that a company incurs at the time of issuance of a bond.
487
Efficient market
A market in which asset prices reflect new information quickly and rationally.
488
Elastic
Said of a good or service when the magnitude of elasticity is greater than one.
489
Elasticity
The percentage change in one variable for a percentage change in another variable; a general measure of how sensitive one variable is to a change in the value of another variable.
490
Elasticity of demand
A measure of the sensitivity of quantity demanded to a change in a product’s own price: %∆Q D/%∆ P .
491
Elasticity of supply
A measure of the sensitivity of quantity supplied to a change in price: %∆Q S /%∆ P .
492
Electronic communications networks
Alternative trading systems Trading venues that function like exchanges but that do not exercise regulatory authority over their subscribers except with respect to the conduct of the
subscribers’ trading in their trading systems. Also called electronic communications networks or multilateral trading facilities.
493
Embedded option
Contingency provisions that provide the issuer or the bondholders the right, but not the obligation, to take action. These options are not part of the security and cannot be traded
separately.
494
Emotional biases
Behavioral biases resulting from reasoning influenced by feelings; emotional biases stem from impulse or intuition.
495
Empirical duration
The use of statistical methods and historical bond prices to estimate the price–yield relationship for a specific bond or portfolio of bonds.
496
Empirical probability
The probability of an event estimated as a relative frequency of occurrence.
497
Employed
The number of people with a job.
498
Endowment bias
An emotional bias in which people value an asset more when they hold rights to it than when they do not.
499
Engagement/active ownership
An ESG investment approach that uses shareholder power to influence corporate behavior through direct corporate engagement (i.e., communicating with senior management
and/or boards of companies), filing or co-filing shareholder proposals, and proxy voting that is directed by ESG guidelines.
500
Enterprise risk management
An overall assessment of a company’s risk position. A centralized approach to risk management sometimes called firmwide risk management.
501
Enterprise value
A measure of a company’s total market value from which the value of cash and short-term investments have been subtracted.
502
Equal weighting
An index weighting method in which an equal weight is assigned to each constituent security at inception.
503
Equipment trust certificates
Bonds secured by specific types of equipment or physical assets.
504
Equity
Assets less liabilities; the residual interest in the assets after subtracting the liabilities.
505
Equity risk premium
The expected return on equities minus the risk-free rate; the premium that investors demand for investing in equities.
506
Equity swap
A swap transaction in which at least one cash flow is tied to the return to an equity portfolio position, often an equity index.
507
Error term
The difference between an observation and its expected value, where the expected value is based on the true underlying population relation between the dependent and independent
variables. Also known simply as the error.
508
ESG
An acronym that encompasses environmental, social, and governance.
509
ESG integration
An ESG investment approach that focuses on systematic consideration of material ESG factors in asset allocation, security selection, and portfolio construction decisions for the
purpose of achieving the product’s stated investment objectives. Used interchangeably with ESG investing .
510
ESG investing
The consideration of environmental, social, and governance factors in the investment process. Used interchangeably with ESG integration .
511
Estimate
The particular value calculated from sample observations using an estimator.
512
Estimated parameters
With reference to a regression analysis, the estimated values of the population intercept and population slope coefficients in a regression.
513
Estimator
An estimation formula; the formula used to compute the sample mean and other sample statistics are examples of estimators.
514
Ethical principles
Beliefs regarding what is good, acceptable, or obligatory behavior and what is bad, unacceptable, or forbidden behavior.
515
Ethics
The study of moral principles or of making good choices. Ethics encompasses a set of moral principles and rules of conduct that provide guidance for our behavior.
516
Eurobonds
Type of bond issued internationally, outside the jurisdiction of the country in whose currency the bond is denominated.
517
European-style
Said of an option contract that can only be exercised on the option’s expiration date.
518
Event
Any outcome or specified set of outcomes of a random variable.
519
Ex-dividend date
The first date that a share trades without (i.e., “ex”) the dividend.
520
Excess kurtosis
Degree of kurtosis (fatness of tails) relative to the kurtosis of the normal distribution.
521
Exchanges
Places where traders can meet to arrange their trades.
522
Execution instructions
Instructions that indicate how to fill an order.
523
Exercise
The process of using an option to buy or sell the underlying.
524
Exercise price
The fixed price at which an option holder can buy or sell the underlying. Also called strike price , striking price , or strike .
525
Exercise value
The value obtained if an option is exercised based on current conditions. Also known as intrinsic value.
526
Exhaustive
Covering or containing all possible outcomes.
527
Expansion
The period of a business cycle after its lowest point and before its highest point.
528
Expansionary
Tending to cause the real economy to grow.
529
Expansionary fiscal policy
Fiscal policy aimed at achieving real economic growth.
530
Expected inflation
The level of inflation that economic agents expect in the future.
531
Expected loss
Default probability times loss severity given default.
532
Expected return on the portfolio
(E(Rp)) The weighted average of the expected returns ( R1 to Rn) on the component securities using their respective weights (w 1 to w n).
533
Expected value
The probability-weighted average of the possible outcomes of a random variable.
534
Expenses
Outflows of economic resources or increases in liabilities that result in decreases in equity (other than decreases because of distributions to owners); reductions in net assets
associated with the creation of revenues.
535
Export subsidy
Paid by the government to the firm when it exports a unit of a good that is being subsidized.
536
Exports
Goods and services that an economy sells to other countries.
537
Extension risk
The risk that when interest rates rise, fewer prepayments will occur because homeowners are reluctant to give up the benefits of a contractual interest rate that now looks low. As a
result, the security becomes longer in maturity than anticipated at the time of purchase.
538
Externalities
Spillover effects of production and consumption activities onto others who are not directly involved in a particular transaction, activity, or decision.
539
Externality
An effect of a market transaction that is borne by parties other than those who transacted.
540
Extra dividend
A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payment.
541
Extreme value theory
A branch of statistics that focuses primarily on extreme outcomes.
542
Face value
The amount of cash payable by a company to the bondholders when the bonds mature; the promised payment at maturity separate from any coupon payment.
543
Factoring arrangement
When a company sells its accounts receivable to a lender (known as a factor) who assumes responsibility for the credit granting and collection process.
544
Fair value
The amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction; the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants.
545
False discovery approach
An adjustment in the p-values for tests performed multiple times.
546
False discovery rate
The rate of Type I errors in testing a null hypothesis multiple times for a given level of significance.
547
Fat-Tailed
Describes a distribution that has fatter tails than a normal distribution (also called leptokurtic).
548
Fed funds rate
The US interbank lending rate on overnight borrowings of reserves.
549
Fiat money
Money that is not convertible into any other commodity.
550
Fiduciary
An entity designated to represent the rights and responsibilities of a beneficiary whose assets they are managing, such as a bond trustee acting on behalf of fixed-income investors.
551
Fiduciary call
A combination of a European call and a risk-free bond that matures on the option expiration day and has a face value equal to the exercise price of the call.
552
FIFO method
The first in, first out, method of accounting for inventory, which matches sales against the costs of items of inventory in the order in which they were placed in inventory.
553
Fill or kill
Immediate or cancel order An order that is valid only upon receipt by the broker or exchange. If such an order cannot be filled in part or in whole upon receipt, it cancels immediately. Also called fill or kill.
554
Finance lease
From the lessee perspective, under US GAAP, a type of lease which is more akin to the purchase of an asset by the lessee. From the lessor perspective, under IFRS, a lease which
“transfers substantially all the risks and rewards incidental to ownership of an underlying asset.”
555
Financial account
A component of the balance of payments account that records investment flows.
556
Financial distress
Heightened uncertainty regarding a company’s ability to meet its various obligations because of diminished earnings power or actual current losses.
557
Financial flexibility
The ability to react and adapt to financial adversity and opportunities.
558
Financial leverage
The extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in
operating income; also, short for the financial leverage ratio.
559
Financial leverage ratio
A measure of financial leverage calculated as average total assets divided by average total equity.
560
Financial risk
The risk that environmental, social, or governance risk factors will result in significant costs or other losses to a company and its shareholders; the risk arising from a company’s obligation to meet required payments under its financing agreements.
561
Financing activities
Activities related to obtaining or repaying capital to be used in the business (e.g., equity and long-term debt).
562
Fintech
Technological innovation in the design and delivery of financial services and products in the financial industry.
563
Firm commitment offering
Underwritten offeringA type of securities issue mechanism in which the investment bank guarantees the sale of the securities at an offering price that is negotiated with the issuer.
Also known as firm commitment offering .
564
First-degree price discrimination
Where a monopolist is able to charge each customer the highest price the customer is willing to pay.
565
First lien debt
Debt secured by a pledge of certain assets that could include buildings, but it may also include property and equipment, licenses, patents, brands, etc.
566
First mortgage debt
Debt secured by a pledge of a specific property.
567
Fiscal multiplier
The ratio of a change in national income to a change in government spending.
568
Fiscal policy
The use of taxes and government spending to affect the level of aggregate expenditures.
569
Fisher effect
The thesis that the real rate of interest in an economy is stable over time so that changes in nominal interest rates are the result of changes in expected inflation.
570
Fixed charge coverage
A solvency ratio measuring the number of times interest and lease payments are covered by operating income, calculated as (EBIT + lease payments) divided by (interest payments
+ lease payments).
571
Fixed costs
Costs that remain at the same level regardless of a company’s level of production and sales.
572
Fixed-for-floating interest rate swap
An interest rate swap in which one party pays a fixed rate and the other pays a floating rate, with both sets of payments in the same currency. Also called plain vanilla swap or
vanilla swap .
573
Fixed-rate perpetual preferred stock
Nonconvertible, noncallable preferred stock that has a fixed dividend rate and no maturity date.
574
Flag
A technical analysis continuation pattern formed by parallel trendlines, typically over a short period.
575
Flat price
The full price of a bond minus the accrued interest; also called the quoted or clean price.
576
Float-adjusted market-capitalization weighting
An index weighting method in which the weight assigned to each constituent security is determined by adjusting its market capitalization for its market float.
577
Floaters
Floating-rate notes Notes on which interest payments are not fixed but instead vary from period to period depending on the current level of a reference interest rate.
578
Floating-rate notes
Notes on which interest payments are not fixed but instead vary from period to period depending on the current level of a reference interest rate.
579
Flotation cost
Fees charged to companies by investment bankers and other costs associated with raising new capital.
580
Foreclosure
Allows the lender to take possession of a mortgaged property if the borrower defaults and then sell it to recover funds.
581
Foreign currency reserves
Holding by the central bank of non-domestic currency deposits and non-domestic bonds.
582
Foreign direct investment
Direct investment by a firm in one country (the source country) in productive assets in a foreign country (the host country).
583
Foreign exchange gains (or losses)
Gains (or losses) that occur when the exchange rate changes between the investor’s currency and the currency that foreign securities are denominated in.
584
Foreign portfolio investment
Shorter-term investment by individuals, firms, and institutional investors (e.g., pension funds) in foreign financial instruments such as foreign stocks and foreign government bonds.
585
Forward commitments
Class of derivatives that provides the ability to lock in a price to transact in the future at a previously agreed-upon price.
586
Forward contract
An agreement between two parties in which one party, the buyer, agrees to buy from the other party, the seller, an underlying asset at a later date for a price established at the start
of the contract.
587
Forward curve
A series of forward rates, each having the same time frame.
588
Forward market
For future delivery, beyond the usual settlement time period in the cash market.
589
Forward price
The fixed price or rate at which the transaction scheduled to occur at the expiration of a forward contract will take place. This price is agreed on at the initiation date of the contract.
590
Forward rate
The interest rate on a bond or money market instrument traded in a forward market. A forward rate can be interpreted as an incremental, or marginal, return for extending the time to-maturity for an additional time period.
591
Forward rate agreements
A forward contract calling for one party to make a fixed interest payment and the other to make an interest payment at a rate to be determined at the contract expiration.
592
Fractile
A value at or below which a stated fraction of the data lies. Also called quantile.
593
Fractional reserve banking
Banking in which reserves constitute a fraction of deposits.
594
Framing bias
An information-processing bias in which a person answers a question differently based on the way in which it is asked (framed).
595
Free cash flow
The actual cash that would be available to the company’s investors after making all investments necessary to maintain the company as an ongoing enterprise (also referred to as free
cash flow to the firm); the internally generated funds that can be distributed to the company’s investors (e.g., shareholders and bondholders) without impairing the value of the
company.
596
Free cash flow hypothesis
The hypothesis that higher debt levels discipline managers by forcing them to make fixed debt service payments and by reducing the company’s free cash flow.
597
Free-cash-flow-to-equity models
Valuation models based on discounting expected future free cash flow to equity.
598
Free float
The number of shares that are readily and freely tradable in the secondary market.
599
Free trade
When there are no government restrictions on a country’s ability to trade.
600
Free trade areas
One of the most prevalent forms of regional integration, in which all barriers to the flow of goods and services among members have been eliminated.
601
Frequency distribution
A tabular display of data constructed either by counting the observations of a variable by distinct values or groups or by tallying the values of a numerical variable into a set of
numerically ordered bins (also called a one-way table).
602
Frequency polygon
A graph of a frequency distribution obtained by drawing straight lines joining successive points representing the class frequencies.
603
Frequency table
A representation of the frequency of occurrence of two discrete variables.
604
Full price
The price of a security with accrued interest; also called the invoice or dirty price.
605
Fund investing
In fund investing, the investor invests in assets indirectly by contributing capital to a fund as part of a group of investors. Fund investing is available for all major alternative
investment types.
606
Fundamental analysis
The examination of publicly available information and the formulation of forecasts to estimate the intrinsic value of assets.
607
Fundamental value
The underlying or true value of an asset based on an analysis of its qualitative and quantitative characteristics. Also called intrinsic value.
608
Fundamental weighting
An index weighting method in which the weight assigned to each constituent security is based on its underlying company’s size. It attempts to address the disadvantages of market capitalization weighting by using measures that are independent of the constituent security’s price.
609
Funds of hedge funds
Funds that hold a portfolio of hedge funds, more commonly shortened to funds of funds .
610
Fungible
Freely exchangeable, interchangeable, or substitutable with other things of the same type. Money and commodities are the most common examples.
611
Future value (FV)
The amount to which a payment or series of payments will grow by a stated future date.
612
Futures contract
A variation of a forward contract that has essentially the same basic definition but with some additional features, such as a clearinghouse guarantee against credit losses, a daily
settlement of gains and losses, and an organized electronic or floor trading facility.
613
Futures price
The agreed-upon price of a futures contract.
614
FX swap
The combination of a spot and a forward FX transaction.
615
G-spread
The yield spread in basis points over an actual or interpolated government bond.
616
Gains
Asset inflows not directly related to the ordinary activities of the business.
617
Game theory
The set of tools decision makers use to incorporate responses by rival decision makers into their strategies.
618
Gamma
A numerical measure of how sensitive an option’s delta (the sensitivity of the derivative’s price) is to a change in the value of the underlying.
619
Gap opening
A gap is an area of a chart where a security’s price either rises or falls from the previous day’s close with no trading occurring in between. A gap opening is the start of a new
trading session with a gap.
620
GDP deflator
A gauge of prices and inflation that measures the aggregate changes in prices across the overall economy.
621
General partner (GP)
The partner that runs the business and theoretically bears unlimited liability for the business’s debts and obligations.
622
Geometric mean
A measure of central tendency computed by taking the nth root of the product of n non-negative values.
623
Giffen goods
Goods that are consumed more as the price of the good rises because it is a very inferior good whose income effect overwhelms its substitution effect when price changes.
624
Gilts
Bonds issued by the UK government.
625
Global depository receipt
A depository receipt that is issued outside of the company’s home country and outside of the United States.
626
Global minimum-variance portfolio
The portfolio on the minimum-variance frontier with the smallest variance of return.
627
Global registered share
A common share that is traded on different stock exchanges around the world in different currencies.
628
Gold standard
With respect to a currency, if a currency is on the gold standard a given amount can be converted into a prespecified amount of gold.
629
Golden Cross
Bullish crossover A technical analysis term that describes a situation where a short-term moving average crosses a longer-term moving average from below; this movement is
considered bullish. A golden cross is a bullish crossover based on 50-day and 200-day moving averages.
630
Good-on-close
An execution instruction specifying that an order can only be filled at the close of trading. Also called market on close.
631
Good-on-open
An execution instruction specifying that an order can only be filled at the opening of trading.
632
Good-till-cancelled order
An order specifying that it is valid until the entity placing the order has cancelled it (or, commonly, until some specified amount of time such as 60 days has elapsed, whichever
comes sooner).
633
Goodwill
An intangible asset that represents the excess of the purchase price of an acquired company over the value of the net assets acquired.
634
Government equivalent yield
A yield that restates a yield-to-maturity based on a 30/360 day count to one based on actual/actual.
635
Green bonds
Bonds used in green finance whereby the proceeds are earmarked toward environmental-related products.
636
Green finance
A type of finance that addresses environmental concerns while achieving economic growth.
637
Green loans
Any loan instruments made available exclusively to finance or re-finance, in whole or in part, new and/or existing eligible green projects. Green loans are commonly aligned in the
market with the Green Loan Principles.
638
Greenfield investment
Investing in infrastructure assets that are to be constructed.
639
Grey market
The forward market for bonds about to be issued. Also called “when issued” market.
640
Gross domestic product
The market value of all final goods and services produced within the economy during a given period (output definition) or, equivalently, the aggregate income earned by all
households, all companies, and the government within the economy during a given period (income definition).
641
Gross margin
Sales minus the cost of sales (i.e., the cost of goods sold for a manufacturing company).
642
Gross profit
Sales minus the cost of sales (i.e., the cost of goods sold for a manufacturing company).
643
Gross profit margin
The ratio of gross profit to revenues.
644
Grouped bar chart
A bar chart for showing joint frequencies for two categorical variables (also known as a clustered bar chart).
645
Grouping by function
With reference to the presentation of expenses in an income statement, the grouping together of expenses serving the same function, e.g. all items that are costs of goods sold.
646
Grouping by nature
With reference to the presentation of expenses in an income statement, the grouping together of expenses by similar nature, e.g., all depreciation expenses.
647
Growth cycle
Refers to fluctuations in economic activity around the long-term potential trend growth level, focusing on how much actual economic activity is below or above trend growth in
economic activity.
648
Growth cyclical
A term sometimes used to describe companies that are growing rapidly on a long-term basis but that still experience above-average fluctuation in their revenues and profits over the
course of a business cycle.
649
Growth investors
With reference to equity investors, investors who seek to invest in high-earnings-growth companies.
650
Growth option
The ability to make additional investments in a project at some future time if the financial results are strong. Also called expansion option .
651
Growth rate cycle
Refers to fluctuations in the growth rate of economic activity.
652
Guarantee certificate
A type of structured financial instrument that provides investors with capital protection. It combines a zero-coupon bond and a call option on some underlying asset.
653
Haircut
Repo margin The difference between the market value of the security used as collateral and the value of the loan. Also called haircut.
654
Halo effect
An emotional bias that extends a favorable evaluation of some characteristics to other characteristics.
655
Hard-bullet covered bonds
Covered bonds for which a bond default is triggered and bond payments are accelerated in the event of sponsor default if payments do not occur according to the original maturity
schedule.
656
Harmonic mean
A type of weighted mean computed as the reciprocal of the arithmetic average of the reciprocals.
657
Head and shoulders pattern
In technical analysis, a reversal pattern that is formed in three parts: a left shoulder, a head, and a right shoulder. A head and shoulders pattern is used to predict a change from an
uptrend to a downtrend.
658
Headline inflation
Refers to the inflation rate calculated based on the price index that includes all goods and services in an economy.
659
Heat map
A type of graphic that organizes and summarizes data in a tabular format and represents it using a color spectrum.
660
Hedge funds
Private investment vehicles that typically use leverage, derivatives, and long and short investment strategies.
661
Hedge portfolio
A hypothetical combination of the derivative and its underlying that eliminates risk.
662
Held-to-maturity
Debt (fixed-income) securities that a company intends to hold to maturity; these are presented at their original cost, updated for any amortisation of discounts or premiums.
663
Herding
Clustered trading that may or may not be based on information.
664
Heteroskedasticity
A violation of the simple linear regression assumption of homoskedasticity; with heteroskedasticity, the variability of the residuals is not equal across all observations.
665
Hidden order
An order that is exposed not to the public but only to the brokers or exchanges that receive it.
666
High-frequency trading
A form of algorithmic trading that makes use of vast quantities of data to execute trades on ultra-high-speed networks in fractions of a second.
667
High-water mark
The highest value, net of fees, which a fund has reached in history. It reflects the highest cumulative return used to calculate an incentive fee.
668
Hindsight bias
A bias with selective perception and retention aspects in which people may see past events as having been predictable and reasonable to expect.
669
Histogram
A chart that presents the distribution of numerical data by using the height of a bar or column to represent the absolute frequency of each bin or interval in the distribution.
670
Historical cost
In reference to assets, the amount paid to purchase an asset, including any costs of acquisition and/or preparation; with reference to liabilities, the amount of proceeds received in
exchange in issuing the liability.
671
Historical equity risk premium approach
An estimate of a country’s equity risk premium that is based on the historical averages of the risk-free rate and the rate of return on the market portfolio.
672
Holder-of-record date
The date that a shareholder listed on the corporation’s books will be deemed to have ownership of the shares for purposes of receiving an upcoming dividend.
673
Holding period return
The return that an investor earns during a specified holding period; a synonym for total return.
674
Home bias
A preference for securities listed on the exchanges of one’s home country.
675
Homogeneity of expectations
The assumption that all investors have the same economic expectations and thus have the same expectations of prices, cash flows, and other investment characteristics.
676
Homoskedasticity
An assumption of simple linear regression such that the variability of the residuals is equal across all observations.
677
Horizon yield
The internal rate of return between the total return (the sum of reinvested coupon payments and the sale price or redemption amount) and the purchase price of the bond.
678
Horizontal analysis
Common-size analysis that involves comparing a specific financial statement with that statement in prior or future time periods; also, cross-sectional analysis of one company with
another.
679
Horizontal demand schedule
Implies that at a given price, the response in the quantity demanded is infinite.
680
Hostile takeover
An attempt by one entity to acquire a company without the consent of the company’s management.
681
Household
A person or a group of people living in the same residence, taken as a basic unit in economic analysis.
682
Human capital
The accumulated knowledge and skill that workers acquire from education, training, or life experience and the corresponding present value of future earnings to be generated by
said skilled individual.
683
Hurdle rate
The minimum rate of return on investment that a fund must reach before a GP receives carried interest.
684
Hurdle rate
The minimum rate of return on investment that a fund must reach before a GP receives carried interest.
685
Hypothesis
A proposed explanation or theory that can be tested.
686
Hypothesis testing
The process of testing of hypotheses about one or more populations using statistical inference.
687
I-spread
The yield spread of a specific bond over the standard swap rate in that currency of the same tenor.
688
Iceberg order
An order in which the display size is less than the order’s full size.
689
If-converted method
A method for accounting for the effect of convertible securities on earnings per share (EPS) that specifies what EPS would have been if the convertible securities had been
converted at the beginning of the period, taking account of the effects of conversion on net income and the weighted average number of shares outstanding.
690
Illusion of control bias
A bias in which people tend to believe that they can control or influence outcomes when, in fact, they cannot.
691
Immediate or cancel order
An order that is valid only upon receipt by the broker or exchange. If such an order cannot be filled in part or in whole upon receipt, it cancels immediately. Also called fill or kill.
692
Impact investing
Investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
693
Impact lag
The lag associated with the result of actions affecting the economy with delay.
694
Implicit price deflator for GDP
A gauge of prices and inflation that measures the aggregate changes in prices across the overall economy.
695
Implicit selection bias
One type of selection bias introduced through the presence of a threshold that filters out some unqualified members.
696
Implied forward rates
Calculated from spot rates, an implied forward rate is a breakeven reinvestment rate that links the return on an investment in a shorter-term zero-coupon bond to the return on an
investment in a longer-term zero-coupon bond.
697
Implied volatility
The volatility that option traders use to price an option, implied by the price of the option and a particular option-pricing model.
698
Import license
Specifies the quantity of a good that can be imported into a country.
699
Imports
Goods and services that a domestic economy (i.e., house-holds, firms, and government) purchases from other countries.
700
In the money
Options that, if exercised, would result in the value received being worth more than the payment required to exercise.
701
Income
Increases in economic benefits in the form of inflows or enhancements of assets, or decreases of liabilities that result in an increase in equity (other than increases resulting from
contributions by owners).
702
Income elasticity of demand
A measure of the responsiveness of demand to changes in income, defined as the percentage change in quantity demanded divided by the percentage change in income.
703
Income tax paid
The actual amount paid for income taxes in the period; not a provision, but the actual cash outflow.
704
Income tax payable
The income tax owed by the company on the basis of taxable income.
705
Increasing marginal returns
When the marginal product of a resource increases as additional units of that input are employed.
706
Increasing returns to scale
When a production process leads to increases in output that are proportionately larger than the increase in inputs.
707
Incremental cash flow
The cash flow that is realized because of a decision; the changes or increments to cash flows resulting from a decision or action.
708
Indenture
Legal contract that describes the form of a bond, the obligations of the issuer, and the rights of the bondholders. Also called the trust deed.
709
Independent
With reference to events, the property that the occurrence of one event does not affect the probability of another event occurring. With reference to two random variables X and Y ,
they are independent if and only if P (X,Y) = P (X )P (Y ).
710
Independent projects
Independent projects are capital investments whose cash flows are independent of each other.
711
Independent variable
A variable used to explain the dependent variable in a regression; a right-side variable in a regression equation. Also referred to as the explanatory variable.
712
Independently and identically distributed
With respect to random variables, the property of random variables that are independent of each other but follow the identical probability distribution.
713
Index-linked bond
Bond for which coupon payments and/or principal repayment are linked to a specified index.
714
Indexing
An investment strategy in which an investor constructs a portfolio to mirror the performance of a specified index.
715
Indicator variable
A variable that takes on only one of two values, 0 or 1, based on a condition. In simple linear regression, the slope is the difference in the dependent variable for the two conditions.
Also referred to as a dummy variable .
716
Indifference curve
A curve representing all the combinations of two goods or attributes such that the consumer is entirely indifferent among them.
717
Indirect format
With reference to cash flow statements, a format for the presentation of the statement which, in the operating cash flow section, begins with net income then shows additions and
subtractions to arrive at operating cash flow. Also called indirect method .
718
Indirect method
Indirect formatWith reference to cash flow statements, a format for the presentation of the statement which, in the operating cash flow section, begins with net income then shows
additions and subtractions to arrive at operating cash flow. Also called indirect method .
719
Indirect taxes
Taxes such as taxes on spending, as opposed to direct taxes.
720
Industry
A group of companies offering similar products and/or services.
721
Industry analysis
The analysis of a specific branch of manufacturing, service, or trade.
722
Inelastic
Said of a good or service when the magnitude of elasticity is less than one. Insensitive to price changes.
723
Inferior goods
A good whose consumption decreases as income increases.
724
Inflation
The percentage increase in the general price level from one period to the next; a sustained rise in the overall level of prices in an economy.
725
Inflation-linked bond
Type of index-linked bond that offers investors protection against inflation by linking the bond’s coupon payments and/or the principal repayment to an index of consumer prices.
Also called linkers .
726
Inflation premium
An extra return that compensates investors for expected inflation.
727
Inflation reports
A type of economic publication put out by many central banks.
728
Inflation uncertainty
The degree to which economic agents view future rates of inflation as difficult to forecast.
729
Information cascade
The transmission of information from those participants who act first and whose decisions influence the decisions of others.
730
Information-motivated traders
Traders that trade to profit from information that they believe allows them to predict future prices.
731
Informationally efficient market
A market in which asset prices reflect new information quickly and rationally.
732
Initial coin offering
An unregulated process whereby companies raise capital by selling crypto tokens to investors in exchange for fiat money or another agreed-upon cryptocurrency.
733
Initial margin
The amount that must be deposited in a clearinghouse account when entering into a futures contract.
734
Initial margin requirement
The margin requirement on the first day of a transaction as well as on any day in which additional margin funds must be deposited.
735
Initial public offering
(IPO) The first issuance of common shares to the public by a formerly private corporation.
736
Input productivity
The amount of output produced by workers in a given period of time—for example, output per hour worked; measures the efficiency of labor.
737
Intangible assets
Assets lacking physical substance, such as patents and trademarks.
738
Interbank market
The market of loans and deposits between banks for maturities ranging from overnight to one year.
739
Intercept
The expected value of the dependent variable when the independent variable in a simple linear regression is equal to zero.
740
Interest
Payment for lending funds.
741
Interest coverage
A solvency ratio calculated as EBIT divided by interest payments.
742
Interest-only mortgage
A loan in which no scheduled principal repayment is specified for a certain number of years.
743
Interest rate
A rate of return that reflects the relationship between differently dated cash flows; a discount rate.
744
Interest rate effect
The effect through which price level changes, through demand for money, impact interest rate, which in turn impacts investment and consumption.
745
Interest rate swap
A swap in which the underlying is an interest rate. Can be viewed as a currency swap in which both currencies are the same and can be created as a combination of currency swaps.
746
Intermarket analysis
A field within technical analysis that combines analysis of the major categories of securities—namely, equities, bonds, currencies, and commodities—to identify market trends and
possible inflections in trends.
747
Internal rate of return
The discount rate that makes net present value equal 0; the discount rate that makes the present value of an investment’s costs (outflows) equal to the present value of the
investment’s benefits (inflows).
748
Internet of Things
A network arrangement of structures and devices whereby the objects on the network are able to interact and share information.
749
Interpolated spread
The yield spread of a specific bond over the standard swap rate in that currency of the same tenor.
750
Interquartile range
The difference between the third and first quartiles of a dataset.
751
Interval
With reference to grouped data, a set of values within which an observation falls.
752
Intrinsic value
Exercise value The value obtained if an option is exercised based on current conditions. Also known as intrinsic value.
753
Inventory investment
Net change in business inventory.
754
Inventory turnover
An activity ratio calculated as cost of goods sold divided by average inventory.
755
Inverse demand function
A restatement of the demand function in which price is stated as a function of quantity.
756
Inverse floater
A type of leveraged structured financial instrument. The cash flows are adjusted periodically and move in the opposite direction of changes in the reference rate.
757
Inverse transformation method
A method using randomly generated numbers from the continuous uniform distribution to generate random observations from any distribution.
758
Investing activities
Activities associated with the acquisition and disposal of property, plant, and equipment; intangible assets; other long-term assets; and both long-term and short-term investments in the equity and debt (bonds and loans) issued by other companies.
759
Investment banks
Financial intermediaries that provide advice to their mostly corporate clients and help them arrange transactions such as initial and seasoned securities offerings.
760
Investment policy statement
(IPS) A written planning document that describes a client’s investment objectives and risk tolerance over a relevant time horizon, along with constraints that apply to the client’s
portfolio.
761
Investment property
Property used to earn rental income or capital appreciation (or both).
762
Jackknife
A resampling method that repeatedly draws samples by taking the original observed data sample and leaving out one observation at a time (without replacement) from the set.
763
January effect
Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the
first five trading days in January. Also called turn-of-the-year effect.
764
Joint frequencies
The entry in the cells of the contingency table that represent the joining of one variable from a row and the other variable from a column to count observations.
765
Joint probability
The probability of the joint occurrence of stated events.
766
Joint probability function
A function giving the probability of joint occurrences of values of stated random variables.
767
Judgmental Sampling
A procedure of selectively handpicking elements from the population based on a researcher’s knowledge and professional judgment.
768
Key rate duration
A method of measuring the interest rate sensitivities of a fixed-income instrument or portfolio to shifts in key points along the yield curve.
769
Keynesians
Economists who believe that fiscal policy can have powerful effects on aggregate demand, output, and employment when there is substantial spare capacity in an economy.
770
Kurtosis
The statistical measure that indicates the combined weight of the tails of a distribution relative to the rest of the distribution.
771
Labor force
The portion of the working age population (over the age of 16) that is employed or is available for work but not working (unemployed).
772
Labor productivity
The quantity of goods and services (real GDP) that a worker can produce in one hour of work.
773
Lagging economic indicators
Turning points that take place later than those of the overall economy; they are believed to have value in identifying the economy’s past condition.
774
Law of demand
The principle that as the price of a good rises, buyers will choose to buy less of it, and as its price falls, they will buy more.
775
Law of diminishing marginal returns
The observation that a variable factor’s marginal product must eventually fall as more of it is added to a fixed amount of the other factors.
776
Law of diminishing returns
The smallest output that a firm can produce such that its long run average costs are minimized.
777
Law of one price
The condition in a financial market in which two equivalent financial instruments or combinations of financial instruments can sell for only one price. Equivalent to the principle
that no arbitrage opportunities are possible.
778
Lead underwriter
The lead investment bank in a syndicate of investment banks and broker–dealers involved in a securities underwriting.
779
Leading economic indicators
Turning points that usually precede those of the overall economy; they are believed to have value for predicting the economy’s future state, usually near-term.
780
Lease
A contract that conveys the right to use an asset for a period of time in exchange for consideration.
781
Legal tender
Something that must be accepted when offered in exchange for goods and services.
782
Lender of last resort
An entity willing to lend money when no other entity is ready to do so.
783
Leptokurtic
Describes a distribution that has fatter tails than a normal distribution (also called fat-tailed).
784
Lessee
The party obtaining the use of an asset through a lease.
785
Lessor
The owner of an asset that grants the right to use the asset to another party.
786
Letter of credit
Form of external credit enhancement whereby a financial institution provides the issuer with a credit line to reimburse any cash flow shortfalls from the assets backing the issue.
787
Level of significance
The probability of a Type I error in testing a hypothesis.
788
Leverage
In the context of corporate finance, leverage refers to the use of fixed costs within a company’s cost structure. Fixed costs that are operating costs (such as depreciation or rent)
create operating leverage. Fixed costs that are financial costs (such as interest expense) create financial leverage.
789
Leveraged buyout
A transaction whereby the target company’s management team converts the target to a privately held company by using heavy borrowing to finance the purchase of the target
company’s outstanding shares.
790
Liabilities
Present obligations of an enterprise arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits; creditors’ claims
on the resources of a company.
791
LIFO layer liquidation
With respect to the application of the LIFO inventory method, the liquidation of old, relatively low-priced inventory; happens when the volume of sales rises above the volume of
recent purchases so that some sales are made from relatively old, low-priced inventory. Also called LIFO liquidation .
792
LIFO reserve
The difference between the reported LIFO inventory carrying amount and the inventory amount that would have been reported if the FIFO method had been used (in other words,
the FIFO inventory value less the LIFO inventory value).
793
Likelihood
The probability of an observation, given a particular set of conditions.
794
Limit down
A limit move in the futures market in which the price at which a transaction would be made is at or below the lower limit.
795
Limit order
Instructions to a broker or exchange to obtain the best price immediately available when filling an order, but in no event accept a price higher than a specified (limit) price when
buying or accept a price lower than a specified (limit) price when selling.
796
Limit order book
The book or list of limit orders to buy and sell that pertains to a security.
797
Limit up
A limit move in the futures market in which the price at which a transaction would be made is at or above the upper limit.
798
Limitations on liens
Meant to put limits on how much secured debt an issuer can have.
799
Limited partners
Partners with limited liability. Limited partnerships in hedge and private equity funds are typically restricted to investors who are expected to understand and to be able to assume
the risks associated with the investments.
800
Limited partnership agreement (LPA)
A legal document that outlines the rules of the partnership and establishes the framework that ultimately guides the fund’s operations throughout its life.
801
Lin-log model
A regression model in which the independent variable is in logarithmic form.
802
Line chart
A type of graph used to visualize ordered observations. In technical analysis, a plot of price data, typically closing prices, with a line connecting the points.
803
Linear interpolation
The estimation of an unknown value on the basis of two known values that bracket it, using a straight line between the two known values.
804
Linear regression
Regression that models the straight-line relationship between the dependent and independent variables. Also known as least squares regression and ordinary least squares regression.
805
Linear scale
A scale in which equal distances correspond to equal absolute amounts. Also called an arithmetic scale .
806
Linker
Inflation-linked bondType of index-linked bond that offers investors protection against inflation by linking the bond’s coupon payments and/or the principal repayment to an index
of consumer prices. Also called linkers .
807
Liquid market
Said of a market in which traders can buy or sell with low total transaction costs when they want to trade.
808
Liquidation
To sell the assets of a company, division, or subsidiary piecemeal, typically because of bankruptcy; the form of bankruptcy that allows for the orderly satisfaction of creditors’
claims after which the company ceases to exist.
809
Liquidity
The extent to which a company is able to meet its short-term obligations using cash flows and those assets that can be readily transformed into cash.
810
Liquidity premium
An extra return that compensates investors for the risk of loss relative to an investment’s fair value if the investment needs to be converted to cash quickly.
811
Liquidity ratios
Financial ratios measuring the company’s ability to meet its short-term obligations to creditors.
812
Liquidity risk
The risk that a financial instrument cannot be purchased or sold without a significant concession in price due to the size of the market.
813
Liquidity trap
A condition in which the demand for money becomes infinitely elastic (horizontal demand curve) so that injections of money into the economy will not lower interest rates or affect
real activity.
814
Load fund
A mutual fund in which, in addition to the annual fee, a percentage fee is charged to invest in the fund and/or for redemptions from the fund.
815
Loan-to-value ratio
The amount of the property's mortgage divided by the purchase price
816
Locked limit
A condition in the futures markets in which a transaction cannot take place because the price would be beyond the limits.
817
Lockup period
The minimum holding period before investors are allowed to make withdrawals or redeem shares from a fund.
818
Log-lin model
A regression model in which the dependent variable is in logarithmic form.
819
Log-log model
A regression model in which both the dependent and independent variables are in logarithmic form. Also known as the double-log model.
820
Logarithmic scale
A scale in which equal distances represent equal proportional changes in the underlying quantity.
821
London interbank offered rate (Libor)
Collective name for multiple rates at which a select set of banks believes they could borrow unsecured funds from other banks in the London interbank market for different
currencies and different borrowing periods ranging from overnight to one year.
822
Long
The buyer of a derivative contract. Also refers to the position of owning a derivative.
823
Long-lived assets
Assets that are expected to provide economic benefits over a future period of time, typically greater than one year. Also called long-term assets.
824
Long position
A position in an asset or contract in which one owns the asset or has an exercisable right under the contract.
825
Long-run average total cost
The curve describing average total cost when no costs are considered fixed.
826
Look-ahead bias
A bias caused by using information that was unavailable on the test date.
827
Loss aversion
The tendency of people to dislike losses more than they like comparable gains.
828
Loss-aversion bias
A bias in which people tend to strongly prefer avoiding losses as opposed to achieving gains.
829
Loss severity
Portion of a bond’s value (including unpaid interest) an investor loses in the event of default.
830
Losses
Asset outflows not directly related to the ordinary activities of the business.
831
Lower bound
The lowest possible value of an option.
832
M2
A measure of what a portfolio would have returned if it had taken on the same total risk as the market index.
833
M2 alpha
Difference between the risk-adjusted performance of the portfolio and the performance of the benchmark.
834
Macaulay duration
The approximate amount of time a bond would have to be held for the market discount rate at purchase to be realized if there is a single change in interest rate. It indicates the point
in time when the coupon reinvestment and price effects of a change in yield-to-maturity offset each other.
835
Machine learning
Computer based techniques that seek to extract knowledge from large amounts of data by “learning” from known examples and then generating structure or predictions. ML
algorithms aim to “find the pattern, apply the pattern.”
836
Macroeconomics
The branch of economics that deals with aggregate economic quantities, such as national output and national income.
837
Maintenance covenants
Covenants in bank loan agreements that require the borrower to satisfy certain financial ratio tests while the loan is outstanding.
838
Maintenance margin
The minimum amount that is required by a futures clearinghouse to maintain a margin account and to protect against default. Participants whose margin balances drop below the
required maintenance margin must replenish their accounts.
839
Maintenance margin requirement
The margin requirement on any day other than the first day of a transaction.
840
Management buy-in
Leveraged buyout in which the current management team is being replaced and the acquiring team will be involved in managing the company.
841
Management buyout
A leveraged buyout event in which a group of investors consisting primarily of the company’s existing management purchases at least controlling interest in its outstanding shares.
At the extreme, they may purchase all shares and take the company private.
842
Management fee
A fee based on assets under management or committed capital, as applicable—also called a base fee.
843
MAR ratio
A variation of the Calmar ratio that uses a full investment history and the average drawdown.
844
Margin
The amount of money that a trader deposits in a margin account. The term is derived from the stock market practice in which an investor borrows a portion of the money required to
purchase a certain amount of stock. In futures markets, there is no borrowing so the margin is more of a down payment or performance bond.
845
Margin bond
A cash deposit required by the clearinghouse from the participants to a contract to provide a credit guarantee. Also called a performance bond .
846
Margin call
A request for the short to deposit additional funds to bring their balance up to the initial margin.
847
Margin loan
Money borrowed from a broker to purchase securities.
848
Marginal cost
The cost of producing an additional unit of a good.
849
Marginal frequencies
The sums determined by adding joint frequencies across rows or across columns in a contingency table.
850
Marginal product
Measures the productivity of each unit of input and is calculated by taking the difference in total product from adding another unit of input (assuming other resource quantities are
held constant).
851
Marginal propensity to consume
The proportion of an additional unit of disposable income that is consumed or spent; the change in consumption for a small change in income.
852
Marginal propensity to save
The proportion of an additional unit of disposable income that is saved (not spent).
853
Marginal revenue
The change in total revenue divided by the change in quantity sold; simply, the additional revenue from selling one more unit.
854
Marginal value curve
A curve describing the highest price consumers are willing to pay for each additional unit of a good.
855
Mark to market
The revaluation of a financial asset or liability to its current market value or fair value.
856
Mark-to-market (2)
Refers to the current expected fair market value for which a given security would likely be available for purchase or sale if traded in current market conditions.
857
Market anomaly
Change in the price or return of a security that cannot directly be linked to current relevant information known in the market or to the release of new information into the market.
858
Market bid–ask spread
The difference between the best bid and the best offer.
859
Market-capitalization weighting
An index weighting method in which the weight assigned to each constituent security is determined by dividing its market capitalization by the total market capitalization (sum of
the market capitalization) of all securities in the index. Also called value weighting.
860
Market discount rate
The rate of return required by investors given the risk of the investment in a bond; also called the required yield or the required rate of return .
861
Market float
The number of shares that are available to the investing public.
862
Market liquidity risk
The risk that the price at which investors can actually transact—buying or selling—may differ from the price indicated in the market.
863
Market model
A regression equation that specifies a linear relationship between the return on a security (or portfolio) and the return on a broad market index.
864
Market multiple models
Valuation models based on share price multiples or enterprise value multiples.
865
Market-on-close
An execution instruction specifying that an order can only be filled at the close of trading.
866
Market order
Instructions to a broker or exchange to obtain the best price immediately available when filling an order.
867
Market-oriented investors
With reference to equity investors, investors whose investment disciplines cannot be clearly categorized as value or growth.
868
Market rate of interest
The rate demanded by purchasers of bonds, given the risks associated with future cash payment obligations of the particular bond issue.
869
Market reference rate (MRR)
Collective name for a set of rates covering different currencies for different maturities, ranging from overnight to one year.
870
Market risk
The risk that arises from movements in interest rates, stock prices, exchange rates, and commodity prices.
871
Market value
The price at which an asset or security can currently be bought or sold in an open market.
872
Marketable limit order
A buy limit order in which the limit price is placed above the best offer, or a sell limit order in which the limit price is placed below the best bid. Such orders generally will partially
or completely fill right away.
873
Markowitz efficient frontier
The graph of the set of portfolios offering the maximum expected return for their level of risk (standard deviation of return).
874
Matching principle
The accounting principle that expenses should be recognized in the same period in which the associated revenue is recognized.
875
Matrix pricing
Process of estimating the market discount rate and price of a bond based on the quoted or flat prices of more frequently traded comparable bonds.
876
Maturity premium
An extra return that compensates investors for the increased sensitivity of the market value of debt to a change in market interest rates as maturity is extended.
877
Maturity structure
A factor explaining the differences in yields on similar bonds; also called term structure.
878
Mean absolute deviation
With reference to a sample, the mean of the absolute values of deviations from the sample mean.
879
Mean square error (MSE)
The sum of squares error divided by the degrees of freedom, n − k − 1; in a simple linear regression, n − k − 1 = n − 2.
880
Mean square regression (MSR)
The sum of squares regression divided by the number of independent variables k; in a simple linear regression, k = 1.
881
Mean–variance analysis
An approach to portfolio analysis using expected means, variances, and covariances of asset returns.
882
Measure of central tendency
A quantitative measure that specifies where data are centered.
883
Measure of value
A standard for measuring value; a function of money.
884
Measures of location
Quantitative measures that describe the location or distribution of data. They include not only measures of central tendency but also other measures, such as percentiles.
885
Median
The value of the middle item of a set of items that has been sorted into ascending or descending order (i.e., the 50th percentile).
886
Medium of exchange
Any asset that can be used to purchase goods and services or to repay debts; a function of money.
887
Medium-term note
A corporate bond offered continuously to investors by an agent of the issuer, designed to fill the funding gap between commercial paper and long-term bonds.
888
Mental accounting bias
An information-processing bias in which people treat one sum of money differently from another equal-sized sum based on which mental account the money is assigned to.
889
Menu costs
A cost of inflation in which businesses constantly have to incur the costs of changing the advertised prices of their goods and services.
890
Mesokurtic
Describes a distribution with kurtosis equal to that of the normal distribution, namely, kurtosis equal to three.
891
Microeconomics
The branch of economics that deals with markets and decision making of individual economic units, including consumers and businesses.
892
Minimum efficient scale
The smallest output that a firm can produce such that its long-run average total cost is minimized.
893
Minimum-variance portfolio
The portfolio with the minimum variance for each given level of expected return.
894
Minority shareholders
Particular shareholders or a block of shareholders holding a small proportion of a company’s outstanding shares, resulting in a limited ability to exercise control in voting activities.
895
Minsky moment
Named for Hyman Minksy. A point in a business cycle when, after individuals become overextended in borrowing to finance speculative investments, people start realizing that
something is likely to go wrong and a panic ensues, leading to asset sell-offs.
896
Modal interval
With reference to grouped data, the interval containing the greatest number of observations (i.e., highest frequency).
897
Mode
The most frequently occurring value in a distribution.
898
Modern portfolio theory
(MPT) The analysis of rational portfolio choices based on the efficient use of risk.
899
Modified duration
A measure of the percentage price change of a bond given a change in its yield-to-maturity.
900
Momentum oscillator
A graphical representation of market sentiment that is constructed from price data and calculated so that it oscillates either between a low and a high or around some number.
901
Monetarists
Economists who believe that the rate of growth of the money supply is the primary determinant of the rate of inflation.
902
Monetary policy
Actions taken by a nation’s central bank to affect aggregate output and prices through changes in bank reserves, reserve requirements, or its target interest rate.
903
Monetary transmission mechanism
The process whereby a central bank’s interest rate gets transmitted through the economy and ultimately affects the rate of increase of prices.
904
Monetary union
An economic union in which the members adopt a common currency.
905
Money
A generally accepted medium of exchange and unit of account.
906
Money convexity
For a bond, the annual or approximate convexity multiplied by the full price.
907
Money creation
The process by which changes in bank reserves translate into changes in the money supply.
908
Money duration
A measure of the price change in units of the currency in which the bond is denominated given a change in its yield-to-maturity.
909
Money market
The market for short-term debt instruments (one-year maturity or less).
910
Money market securities
Fixed-income securities with maturities at issuance of one year or less.
911
Money multiplier
Describes how a change in reserves is expected to affect the money supply; in its simplest form, 1 divided by the reserve requirement.
912
Money neutrality
The thesis that an increase in the money supply leads in the long-run to an increase in the price level, while leaving real variables like output and employment unaffected.
913
Money-weighted return
The internal rate of return on a portfolio, taking account of all cash flows.
914
Moneyness
The relationship between the price of the underlying and an option’s exercise price.
915
Monopolistic competition
Highly competitive form of imperfect competition; the competitive characteristic is a notably large number of firms, while the monopoly aspect is the result of product differentiation.
916
Monopoly
In pure monopoly markets, there are no substitutes for the given product or service. There is a single seller, which exercises considerable power over pricing and output decisions.
917
Monte Carlo simulation
A technique involving the use of computer software to represent the operation of a complex financial system. A characteristic feature is the generation of a large number of random samples from a specified probability distribution or distributions to represent the role of risk in the system.
918
Moral principles
Beliefs regarding what is good, acceptable, or obligatory behavior and what is bad, unacceptable, or forbidden behavior.
919
Mortgage-backed securities
Debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property.
920
Mortgage loan
A loan secured by the collateral of some specified real estate property that obliges the borrower to make a predetermined series of payments to the lender.
921
Mortgage pass-through security
A security created when one or more holders of mortgages form a pool of mortgages and sell shares or participation certificates in the pool.
922
Mortgage rate
The interest rate on a mortgage loan; also called contract rate or note rate.
923
Moving average
The average of the closing price of a security over a specified number of periods. With each new period, the average is recalculated.
924
Moving-average convergence/divergence oscillator
A momentum oscillator that is based on the difference between short-term and long-term moving averages of a security’s price.
925
Multi-factor model
A model that explains a variable in terms of the values of a set of factors.
926
Multi-market indexes
Comprised of indexes from different countries, designed to represent multiple security markets.
927
Multi-step format
With respect to the format of the income statement, a format that presents a subtotal for gross profit (revenue minus cost of goods sold).
928
Multilateral trading facilities
Alternative trading systemsTrading venues that function like exchanges but that do not exercise regulatory authority over their subscribers except with respect to the conduct of the subscribers’ trading in their trading systems. Also called electronic communications networks or multilateral trading facilities.
929
Multinational corporation
A company operating in more than one country or having subsidiary firms in more than one country.
930
Multinomial formula (general formula for labeling problems)
The number of ways that n objects can be labeled with k different labels, with n1 of the first type, n2 of the second type, and so on, with n1 + n2 + ... + nk = n, is given by n! n1! n2! ...nk! .
931
Multiple of invested capital (MOIC)
A simplified calculation that measures the total value of all distributions and residual asset values relative to an initial total investment; also known as a money multiple.
932
Multiple testing problem
The risk of getting statistically significant test results when performing a test multiple times.
933
Multiplication rule for counting
If one task can be done in n1 ways, and a second task, given the first, can be done in n2 ways, and a third task, given the first two tasks, can be done in n3 ways, and so on for k tasks, then the number of ways the k tasks can be done is (n1)(n2)(n3) ... (nk).
934
Multiplication rule for expected value of the product of uncorrelated random variables
This rule is E(XY) = E(X)E(Y) if X and Y are uncorrelated.
935
Multiplication rule for independent events
The rule that when two events are independent, the joint probability of A and B equals the product of the individual probabilities of A and B.
936
Multiplication rule for probability
The rule that the joint probability of events A and B equals the probability of A given B times the probability of B.
937
Multiplier models
Valuation models based on share price multiples or enterprise value multiples.
938
Multivariate distribution
A probability distribution that specifies the probabilities for a group of related random variables.
939
Multivariate normal distribution
A probability distribution for a group of random variables that is completely defined by the means and variances of the variables plus all the correlations between pairs of the variables.
940
Muni
Municipal bond A type of non-sovereign bond issued by a state or local government in the United States. It very often (but not always) offers income tax exemptions.
941
Municipal bond
A type of non-sovereign bond issued by a state or local government in the United States. It very often (but not always) offers income tax exemptions.
942
Mutual fund
A comingled investment pool in which investors in the fund each have a pro-rata claim on the income and value of the fund.
943
Mutually exclusive
Indicates that only one event can occur at a time.
944
Mutually exclusive projects
Mutually exclusive projects compete directly with each other. For example, if Projects A and B are mutually exclusive, you can choose A or B but you cannot choose both.
945
n Factorial
For a positive integer n, the product of the first n positive integers; 0 factorial equals 1 by definition. n factorial is written as n!.
946
Narrow money
The notes and coins in circulation in an economy, plus other very highly liquid deposits.
947
Nash equilibrium
When two or more participants in a non-coop-erative game have no incentive to deviate from their respective equilibrium strategies given their opponent’s strategies.
948
National income
The income received by all factors of production used in the generation of final output. National income equals gross domestic product (or, in some countries, gross national product) minus the capital consumption allowance and a statistical discrepancy.
949
Natural language processing
Computer programs developed to analyze and interpret human language.
950
Natural rate of unemployment
Effective unemployment rate, below which pressure emerges in labor markets.
951
Negative screening
An ESG investment style that focuses on the exclusion of certain sectors, companies, or practices in a fund or portfolio on the basis of specific ESG criteria.
952
Net book value
The remaining (undepreciated) balance of an asset’s purchase cost. For liabilities, the face value of a bond minus any unamortized discount, or plus any unamortized premium.
953
Net exports
The difference between the value of a country’s exports and the value of its imports (i.e., value of exports minus imports).
954
Net income
The difference between revenue and expenses; what remains after subtracting all expenses (including depreciation, interest, and taxes) from revenue.
955
Net present value
The present value of an investment’s cash inflows (benefits) minus the present value of its cash outflows (costs).
956
Net profit margin
An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses. Also called profit margin or return on sales.
957
Net realisable value
Estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
958
Net revenue
Revenue after adjustments (e.g., for estimated returns or for amounts unlikely to be collected).
959
Net tax rate
The tax rate net of transfer payments.
960
Neural networks
Computer programs based on how our own brains learn and process information.
961
Neutral rate of interest
The rate of interest that neither spurs on nor slows down the underlying economy.
962
No-load fund
A mutual fund in which there is no fee for investing in the fund or for redeeming fund shares, although there is an annual fee based on a percentage of the fund’s net asset value.
963
Node
Each value on a binomial tree from which successive moves or outcomes branch.
964
Nominal data
Categorical values that are not amenable to being organized in a logical order. An example of nominal data is the classification of publicly listed stocks into sectors.
965
Nominal GDP
The value of goods and services measured at current prices.
966
Nominal risk-free interest rate
The sum of the real risk-free interest rate and the inflation premium.
967
Non-accelerating inflation rate of unemployment
Effective unemployment rate below which pressure emerges in labor markets.
968
Non-agency RMBS
In the United States, securities issued by private entities that are not guaranteed by a federal agency or a GSE.
969
Non-Bank lender
Unlike typical banks, which make loans and take deposits, these lenders only make loans. Although they lend money to companies, they usually specialize in issuing mortgages to first-time home buyers and parties looking to refinance an existing mortgage.
970
Non-cumulative preference shares
Preference shares for which dividends that are not paid in the current or subsequent periods are forfeited permanently (instead of being accrued and paid at a later date).
971
Non-current assets
Assets that are expected to benefit the company over an extended period of time (usually more than one year).
972
Non-current liabilities
Obligations that broadly represent a probable sacrifice of economic benefits in periods generally greater than one year in the future.
973
Non-cyclical
A company whose performance is largely independent of the business cycle. Also known as defensive.
974
Non-deliverable forwards
Cash-settled forward contracts, used predominately with respect to foreign exchange forwards. Also called contracts for differences.
975
Non-financial risks
Risks that arise from sources other than changes in the external financial markets, such as changes in accounting rules, legal environment, or tax rates.
976
Non-participating preference shares
Preference shares that do not entitle shareholders to share in the profits of the company. Instead, shareholders are only entitled to receive a fixed dividend payment and the par value of the shares in the event of liquidation.
977
Non-probability sampling
A sampling plan dependent on factors other than probability considerations, such as a sampler’s judgment or the convenience to access data.
978
Non-recourse loan
A loan in which the lender does not have a shortfall claim against the borrower, so the lender can look only to the property to recover the outstanding mortgage balance.
979
Non-renewable resources
Finite resources that are depleted once they are consumed, such as oil and coal.
980
Non-sovereign bond
A bond issued by a government below the national level, such as a province, region, state, or city.
981
Nonconventional cash flows
In a nonconventional cash flow pattern, the initial outflow is not followed by inflows only, but the cash flows can flip from positive (inflows) to negative (outflows) again or even change signs several times.
982
Nonparametric test
A test that is not concerned with a parameter or that makes minimal assumptions about the population from which a sample comes.
983
Nonsystematic risk
Unique risk that is local or limited to a particular asset or industry that need not affect assets outside of that asset class.
984
Normal distribution
A continuous, symmetric probability distribution that is completely described by its mean and its variance.
985
Normal goods
Goods that are consumed in greater quantities as income increases.
986
Normal profit
The level of accounting profit needed to just cover the implicit opportunity costs ignored in accounting costs.
987
Notching
Ratings adjustment methodology where specific issues from the same borrower may be assigned different credit ratings.
988
Note rate
Mortgage rate The interest rate on a mortgage loan; also called contract rate or note rate.
989
Notice period
The length of time (typically 30 to 90 days) in advance that investors may be required to notify a fund of their intent to redeem some or all of their investment.
990
Notional principal
An imputed principal amount.
991
Null hypothesis
The hypothesis that is tested.
992
Numerical data
Values that represent measured or counted quantities as a number. Also called quantitative data.
993
Objective probabilities
Probabilities that generally do not vary from person to person; includes a priori and empirical probabilities.
994
Observation
The value of a specific variable collected at a point in time or over a specified period of time.
995
Odds against E
The reciprocal of odds for E.
996
Odds for E
The probability of E divided by 1 minus the probability of E.
997
Off-the-run
Seasoned government bonds are off-the-run securities; they are not the most recently issued or the most actively traded.
998
Offer
The price at which a dealer or trader is willing to sell an asset, typically qualified by a maximum quantity (ask size).
999
Official interest rate
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks. Also called official policy rate or policy rate.
1000
Official policy rate
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
1001
Oligopoly
Market structure with a relatively small number of firms supplying the market.
1002
On-the-run
The most recently issued and most actively traded sovereign securities.
1003
One-dimensional array
The simplest format for representing a collection of data of the same data type.
1004
One-sided hypothesis test
A test in which the null hypothesis is rejected only if the evidence indicates that the population parameter is greater than or less than the hypothesized parameter; occurs when the alternative hypothesis is stated either as greater than or less than the hypothesized population parameter.
1005
Open economy
An economy that trades with other countries.
1006
Open-end fund
A mutual fund that accepts new investment money and issues additional shares at a value equal to the net asset value of the fund at the time of investment.
1007
Open interest
The number of outstanding contracts in a clearinghouse at any given time. The open interest figure changes daily as some parties open up new positions, while other parties offset their old positions.
1008
Open market operations
The purchase or sale of bonds by the national central bank to implement monetary policy. The bonds traded are usually sovereign bonds issued by the national government.
1009
Operating activities
Activities that are part of the day-to-day business functioning of an entity, such as selling inventory and providing services.
1010
Operating breakeven
The number of units produced and sold at which the company’s operating profit is zero (revenues = operating costs).
1011
Operating cash flow
The net amount of cash provided from operating activities.
1012
Operating efficiency ratios
Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory.
1013
Operating lease
A type of lease which is more akin to the rental of the underlying asset.
1014
Operating leverage
The use of fixed costs in operations.
1015
Operating profit
A company’s profits on its usual business activities before deducting taxes. Also called operating income.
1016
Operating profit margin
A profitability ratio calculated as operating income (i.e., income before interest and taxes) divided by revenue. Also called operating margin.
1017
Operating risk
The risk attributed to the operating cost structure, in particular the use of fixed costs in operations; the risk arising from the mix of fixed and variable costs; the risk that a company’s operations may be severely affected by environmental, social, and governance risk factors.
1018
Operational independence
A bank’s ability to execute monetary policy and set interest rates in the way it thought would best meet the inflation target.
1019
Operational risk
The risk that arises from inadequate or failed people, systems, and internal policies, procedures, and processes, as well as from external events that are beyond the control of the organization but that affect its operations.
1020
Operationally efficient
Said of a market, a financial system, or an economy that has relatively low transaction costs.
1021
Opportunity cost
The value that investors forgo by choosing a particular course of action; the value of something in its best alternative use.
1022
Optimal capital structure
The capital structure at which the value of the company is maximized.
1023
Option
A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time. Also referred to as contingent claim or option contract.
1024
Option-adjusted price
The value of the embedded option plus the flat price of the bond.
1025
Option-adjusted spread
OAS = Z-spread – Option value (in basis points per year).
1026
Option-adjusted yield
The required market discount rate whereby the price is adjusted for the value of the embedded option.
1027
Option contract
Option A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time. Also referred to as contingent claim or option contract.
1028
Option premium
The amount of money a buyer pays and seller receives to engage in an option transaction.
1029
Order
A specification of what instrument to trade, how much to trade, and whether to buy or sell.
1030
Order-driven markets
A market (generally an auction market) that uses rules to arrange trades based on the orders that traders submit; in their pure form, such markets do not make use of dealers.
1031
Order precedence hierarchy
With respect to the execution of orders to trade, a set of rules that determines which orders execute before other orders.
1032
Ordinal data
Categorical values that can be logically ordered or ranked.
1033
Ordinary annuity
An annuity with a first cash flow that is paid one period from the present.
1034
Ordinary shares
Equity shares that are subordinate to all other types of equity (e.g., preferred equity). Also called common stock or common shares.
1035
Organized exchange
A securities marketplace where buyers and seller can meet to arrange their trades.
1036
Other comprehensive income
Items of comprehensive income that are not reported on the income statement; comprehensive income minus net income.
1037
Out-of-sample test
A test of a strategy or model using a sample outside the period on which the strategy or model was developed.
1038
Out of the money
Options that, if exercised, would require the payment of more money than the value received and therefore would not be currently exercised.
1039
Outcome
A possible value of a random variable.
1040
Over-the-counter (OTC) market
A decentralized market where buy and sell orders initiated from various locations are matched through a communications network.
1041
Overbought
A market condition in which market sentiment is thought to be unsustainably bullish.
1042
Overcollateralization
Form of internal credit enhancement that refers to the process of posting more collateral than needed to obtain or secure financing.
1043
Overconfidence bias
A bias in which people demonstrate unwarranted faith in their own intuitive reasoning, judgments, and/or cognitive abilities.
1044
Overfitting
An undesirable result from fitting a model so closely to a dataset that it does not perform well on new data.
1045
Oversold
A market condition in which market sentiment is thought to be unsustainably bearish.
1046
Own price
The price of a good or service itself (as opposed to the price of something else).
1047
Own-price elasticity of demand
The percentage change in quantity demanded for a percentage change in good’s own price, holding all other things constant.
1048
Owners’ equity
The excess of assets over liabilities; the residual interest of shareholders in the assets of an entity after deducting the entity’s liabilities. Also called shareholders’ equity or shareholders’ funds.
1049
p-Value
The smallest level of significance at which the null is rejected.
1050
Paired comparisons test
Test of the mean of the differences A statistical test for differences based on paired observations drawn from samples that are dependent on each other.
1051
Panel data
A mix of time-series and cross-sectional data that contains observations through time on characteristics of across multiple observational units.
1052
Par curve
A sequence of yields-to-maturity such that each bond is priced at par value. The bonds are assumed to have the same currency, credit risk, liquidity, tax status, and annual yields stated for the same periodicity.
1053
Par value
The amount of principal on a bond.
1054
Parallel shift
A parallel yield curve shift implies that all rates change by the same amount in the same direction.
1055
Parameter
A descriptive measure computed from or used to describe a population of data, conventionally represented by Greek letters.
1056
Parametric test
Any test (or procedure) concerned with parameters or whose validity depends on assumptions concerning the population generating the sample.
1057
Pari passu
Covenant or contract clause that ensures a debt obligation is treated the same as the borrower’s other senior debt instruments and is not subordinated to similar obligations.
1058
Partial duration
Key rate duration A method of measuring the interest rate sensitivities of a fixed-income instrument or portfolio to shifts in key points along the yield curve.
1059
Participating preference shares
Preference shares that entitle shareholders to receive the standard preferred dividend plus the opportunity to receive an additional dividend if the company’s profits exceed a pre-specified level.
1060
Pass-through rate
The coupon rate of a mortgage pass-through security.
1061
Passive investment
A buy and hold approach in which an investor does not make portfolio changes based on short-term expectations of changing market or security performance.
1062
Payable date
The day that the company actually mails out (or electronically transfers) a dividend payment.
1063
Payment date
The day that the company actually mails out (or electronically transfers) a dividend payment.
1064
Payments system
The system for the transfer of money
1065
Pearson correlation
A parametric measure of the relationship between two variables.
1066
Pecking order theory
The theory that managers consider how their actions might be interpreted by outsiders and thus order their preferences for various forms of corporate financing. Forms of financing that are least visible to outsiders (e.g., internally generated funds) are most preferable to managers, and those that are most visible (e.g., equity) are least preferable.
1067
Peer company
Comparable company A company that has similar business risk, usually in the same industry and preferably with a single line of business.
1068
Peer group
A group of companies engaged in similar business activities whose economics and valuation are influenced by closely related factors.
1069
Pennant
A technical analysis continuation pattern formed by trendlines that converge to form a triangle, typically over a short period.
1070
Per capita real GDP
Real GDP divided by the size of the population, often used as a measure of a country’s average standard of living.
1071
Per unit contribution margin
The amount that each unit sold contributes to covering fixed costs—that is, the difference between the price per unit and the variable cost per unit.
1072
Percentiles
Quantiles that divide a distribution into 100 equal parts that sum to 100.
1073
Perfect capital markets
Markets in which, by assumption, there are no taxes, transaction costs, or bankruptcy costs and in which all investors have equal (“symmetric”) information.
1074
Perfect competition
A market structure in which the individual firm has virtually no impact on market price, because it is assumed to be a very small seller among a very large number of firms selling essentially identical products.
1075
Perfectly elastic
When the quantity demanded or supplied of a given good is infinitely sensitive to a change in the value of a specified variable (e.g., price).
1076
Perfectly inelastic
When the quantity demanded or supplied of a given good is completely insensitive to a change in the value of a specified variable (e.g., price).
1077
Performance bond
Margin bond A cash deposit required by the clearinghouse from the participants to a contract to provide a credit guarantee. Also called a performance bond.
1078
Performance evaluation
The measurement and assessment of the outcomes of investment management decisions.
1079
Performance fee
Fees paid to the general partner from the limited partner(s) based on realized net profits.
1080
Period costs
Costs (e.g., executives’ salaries) that cannot be directly matched with the timing of revenues and which are thus expensed immediately.
1081
Periodicity
The assumed number of periods in the year; typically matches the frequency of coupon payments.
1082
Permanent differences
Differences between tax and financial reporting of revenue (expenses) that will not be reversed at some future date. These result in a difference between the company’s effective tax rate and statutory tax rate and do not result in a deferred tax item.
1083
Permissioned networks
Networks that are fully open only to select participants on a DLT network.
1084
Permissionless networks
Networks that are fully open to any user on a DLT network.
1085
Permutation
An ordered listing.
1086
Permutation formula
The number of ways that we can choose r objects from a total of n objects, when the order in which the r objects are listed does matter, is nPr=n!(n−r)!.
1087
Perpetual bonds
Bonds with no stated maturity date.
1088
Perpetuity
A perpetual annuity, or a set of never-ending level sequential cash flows, with the first cash flow occurring one period from now. A bond that does not mature.
1089
Personal income
A broad measure of household income that includes all income received by households, whether earned or unearned; measures the ability of consumers to make purchases.
1090
Pet projects
Investments in which influential managers want the corporation to invest. Often, unfortunately, pet projects are selected without undergoing normal capital allocation analysis.
1091
Plain vanilla bond
Bond that makes periodic, fixed coupon payments during the bond’s life and a lump-sum payment of principal at maturity. Also called conventional bond.
1092
Platykurtic
Describes a distribution that has relatively less weight in the tails than the normal distribution (also called thin-tailed).
1093
Point estimate
A single numerical estimate of an unknown quantity, such as a population parameter.
1094
Policy rate
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
1095
Population
All members of a specified group.
1096
Portfolio company
In private equity, the company in which the private equity fund is investing.
1097
Portfolio demand for money
The demand to hold speculative money balances based on the potential opportunities or risks that are inherent in other financial instruments.
1098
Portfolio planning
The process of creating a plan for building a portfolio that is expected to satisfy a client’s investment objectives.
1099
Position
The quantity of an asset that an entity owns or owes.
1100
Positive screening
The process of including sectors or companies based on specific ESG criteria, typically ESG performance relative to industry peers
1101
Posterior probability
An updated probability that reflects or comes after new information.
1102
Potential GDP
The level of real GDP that can be produced at full employment; measures the productive capacity of the economy.
1103
Power of a test
The probability of correctly rejecting the null—that is, rejecting the null hypothesis when it is false.
1104
Precautionary money balances
Money held to provide a buffer against unforeseen events that might require money.
1105
Preference shares
A type of equity interest which ranks above common shares with respect to the payment of dividends and the distribution of the company’s net assets upon liquidation. They have characteristics of both debt and equity securities. Also called preferred stock.
1106
Premium
In the case of bonds, premium refers to the amount by which a bond is priced above its face (par) value. In the case of an option, the amount paid for the option contract.
1107
Prepaid expense
A normal operating expense that has been paid in advance of when it is due.
1108
Prepayment option
Contractual provision that entitles the borrower to prepay all or part of the outstanding mortgage principal prior to the scheduled due date when the principal must be repaid. Also called early repayment option.
1109
Prepayment penalty mortgages
Mortgages that stipulate a monetary penalty if a borrower prepays within a certain time period after the mortgage is originated.
1110
Prepayment risk
The uncertainty that the timing of the actual cash flows will be different from the scheduled cash flows as set forth in the loan agreement due to the borrowers’ ability to alter payments, usually to take advantage of interest rate movements.
1111
Present value (PV)
The present discounted value of future cash flows: For assets, the present discounted value of the future net cash inflows that the asset is expected to generate; for liabilities, the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities.
1112
Present value models
Valuation models that estimate the intrinsic value of a security as the present value of the future benefits expected to be received from the security. Also called discounted cash flow models.
1113
Pretax margin
A profitability ratio calculated as earnings before taxes divided by revenue.
1114
Price elasticity of demand
Measures the percentage change in the quantity demanded, given a percentage change in the price of a given product.
1115
Price index
Represents the average prices of a basket of goods and services
1116
Price limits
Limits imposed by a futures exchange on the price change that can occur from one day to the next
1117
Price multiple
A ratio that compares the share price with some sort of monetary flow or value to allow evaluation of the relative worth of a company’s stock.
1118
Price priority
The principle that the highest priced buy orders and the lowest priced sell orders execute first.
1119
Price relative
A ratio of an ending price over a beginning price; it is equal to 1 plus the holding period return on the asset.
1120
Price return
Measures only the price appreciation or percentage change in price of the securities in an index or portfolio.
1121
Price return index
An index that reflects only the price appreciation or percentage change in price of the constituent securities. Also called price index.
1122
Price-setting option
The option to adjust prices when demand varies from what is forecast.
1123
Price stability
In economics, refers to an inflation rate that is low on average and not subject to wide fluctuation.
1124
Price takers
Producers that must accept whatever price the market dictates.
1125
Price to book value
A valuation ratio calculated as price per share divided by book value per share.
1126
Price to cash flow
A valuation ratio calculated as price per share divided by cash flow per share.
1127
Price to earnings ratio
(P/E ratio or P/E) The ratio of share price to earnings per share.
1128
Price to sales
A valuation ratio calculated as price per share divided by sales per share.
1129
Price value of a basis point
A version of money duration, it is an estimate of the change in the full price of a bond given a 1 basis point change in the yield-to-maturity.
1130
Price weighting
An index weighting method in which the weight assigned to each constituent security is determined by dividing its price by the sum of all the prices of the constituent securities.
1131
Priced risk
Risk for which investors demand compensation for bearing (e.g., equity risk, company-specific factors, macroeconomic factors).
1132
Primary bond market
A market in which issuers first sell bonds to investors to raise capital.
1133
Primary capital markets (primary markets)
The market where securities are first sold and the issuers receive the proceeds.
1134
Primary dealer
Financial institution that is authorized to deal in new issues of sovereign bonds and that serves primarily as a trading counterparty of the office responsible for issuing sovereign bonds.
1135
Primary market
The market where securities are first sold and the issuers receive the proceeds.
1136
Prime brokers
Brokers that provide services that commonly include custody, administration, lending, short borrowing, and trading.
1137
Principal
The amount of funds originally invested in a project or instrument; the face value to be paid at maturity.
1138
Principal–agent relationship
A relationship in which a principal hires an agent to perform a particular task or service; also known as an agency relationship.
1139
Principal amount
Amount that an issuer agrees to repay the debt holders on the maturity date.
1140
Principal business activity
The business activity from which a company derives a majority of its revenues and/or earnings.
1141
Principal value
Amount that an issuer agrees to repay the debt holders on the maturity date.
1142
Principle of no arbitrage
Arbitrage-free pricing The overall process of pricing derivatives by arbitrage and risk neutrality. Also called the principle of no arbitrage.
1143
Prior probabilities
Probabilities reflecting beliefs prior to the arrival of new information.
1144
Priority of claims
Priority of payment, with the most senior or highest ranking debt having the first claim on the cash flows and assets of the issuer.
1145
Private equity fund
A hedge fund that seeks to buy, optimize, and ultimately sell portfolio companies to generate profits. See venture capital fund.
1146
Private equity funds
Funds that seek to invest in, optimize, and eventually exit portfolio companies to generate profits. See venture capital funds.
1147
Private equity securities
Securities that are not listed on public exchanges and have no active secondary market. They are issued primarily to institutional investors via non-public offerings, such as private placements.
1148
Private investment in public equity
(PIPE) An investment in the equity of a publicly traded firm that is made at a discount to the market value of the firm’s shares.
1149
Private placement
Typically, a non-underwritten, unregistered offering of securities that are sold only to an investor or a small group of investors. It can be accomplished directly between the issuer and the investor(s) or through an investment bank.
1150
Probability
A number between 0 and 1 describing the chance that a stated event will occur.
1151
Probability density function
A function with non-negative values such that probability can be described by areas under the curve graphing the function.
1152
Probability distribution
A distribution that specifies the probabilities of a random variable’s possible outcomes.
1153
Probability function
A function that specifies the probability that the random variable takes on a specific value
1154
Probability sampling
A sampling plan that allows every member of the population to have an equal chance of being selected.
1155
Probability tree diagram
A diagram with branches emanating from nodes representing either mutually exclusive chance events or mutually exclusive decisions.
1156
Production-flexibility options
The options to alter production when demand varies from what is forecast.
1157
Production function
Provides the quantitative link between the levels of output that the economy can produce and the inputs used in the production process.
1158
Productivity
The amount of output produced by workers during a given period—for example, output per hour worked measures the efficiency of labor.
1159
Profession
An occupational group that has specific education, expert knowledge, and a framework of practice and behavior that underpins community trust, respect, and recognition.
1160
Profit
The return that owners of a company receive for the use of their capital and the assumption of financial risk when making their investments.
1161
Profit and loss (P&L) statement
A financial statement that provides information about a company’s profitability over a stated period of time. Also called the income statement.
1162
Profit margin
An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses.
1163
Profitability ratios
Ratios that measure a company’s ability to generate profitable sales from its resources (assets).
1164
Project sequencing
To defer the decision to invest in a future project until the outcome of some or all of a current investment is known. Investments are sequenced over time, so that making an investment creates the option to invest in future projects.
1165
Promissory note
A written promise to pay a certain amount of money on demand.
1166
Property, plant, and equipment
Tangible assets that are expected to be used for more than one period in either the production or supply of goods or services, or for administrative purposes.
1167
Prospectus
The document that describes the terms of a new bond issue and helps investors perform their analysis on the issue.
1168
Protective put
An option strategy in which a long position in an asset is combined with a long position in a put.
1169
Proxy contest
Corporate takeover mechanism in which shareholders are persuaded to vote for a group seeking a controlling position on a company’s board of directors.
1170
Proxy voting
A process that enables shareholders who are unable to attend a meeting to authorize another individual to vote on their behalf.
1171
Public offer
Public offering An offering of securities in which any member of the public may buy the securities. Also called public offer.
1172
Public offering
An offering of securities in which any member of the public may buy the securities. Also called public offer.
1173
Public–private partnership (PPP)
An agreement between the public sector and the private sector to finance, build, and operate public infrastructure, such as hospitals and toll roads.
1174
Pull on liquidity
When disbursements are paid too quickly or trade credit availability is limited, requiring companies to expend funds before they receive funds from sales that could cover the liability.
1175
Pure discount bonds
Zero-coupon bond A bond that does not pay interest during its life. It is issued at a discount to par value and redeemed at par. Also called pure discount bond.
1176
Put
An option that gives the holder the right to sell an underlying asset to another party at a fixed price over a specific period of time.
1177
Put–call–forward parity
The relationship among puts, calls, and forward contracts.
1178
Put–call parity
An equation expressing the equivalence (parity) of a portfolio of a call and a bond with a portfolio of a put and the underlying, which leads to the relationship between put and call prices
1179
Put/call ratio
A technical analysis indicator that evaluates market sentiment based on the volume of put options traded divided by the volume of call options traded for a particular financial instrument.
1180
Put option
An option that gives the holder the right to sell an underlying asset to another party at a fixed price over a specific period of time.
1181
Putable bonds
Bonds that give the bondholder the right to sell the bond back to the issuer at a predetermined price on specified dates.
1182
Quantile
A value at or below which a stated fraction of the data lies. Also referred to as a fractile.
1183
Quantitative easing
An expansionary monetary policy based on aggressive open market purchase operations.
1184
Quantity equation of exchange
An expression that over a given period, the amount of money used to purchase all goods and services in an economy, M × V, is equal to monetary value of this output, P × Y.
1185
Quantity theory of money
Asserts that total spending (in money terms) is proportional to the quantity of money.
1186
Quartiles
Quantiles that divide a distribution into four equal parts.
1187
Quasi-fixed cost
A cost that stays the same over a range of production but can change to another constant level when production moves outside of that range.
1188
Quasi-government bond
A bond issued by an entity that is either owned or sponsored by a national government. Also called agency bond.
1189
Quota rents
Profits that foreign producers can earn by raising the price of their goods higher than they would without a quota.
1190
Quotas
Government policies that restrict the quantity of a good that can be imported into a country, generally for a specified period of time.
1191
Quote-driven market
A market in which dealers acting as principals facilitate trading.
1192
Quoted interest rate
A quoted interest rate that does not account for compounding within the year. Also called stated annual interest rate.
1193
Quoted margin
The specified yield spread over the reference rate, used to compensate an investor for the difference in the credit risk of the issuer and that implied by the reference rate.
1194
Random number
An observation drawn from a uniform distribution.
1195
Random number generator
An algorithm that produces uniformly distributed random numbers between 0 and 1.
1196
Random variable
A quantity whose future outcomes are uncertain.
1197
Range
The difference between the maximum and minimum values in a dataset.
1198
Raw data
Data available in their original form as collected.
1199
Real exchange rate effect
The effect through which changing price level impacts real exchange rate which in turn impacts net exports and aggregate demand.
1200
Real GDP
The value of goods and services produced, measured at base year prices.
1201
Real income
Income adjusted for the effect of inflation on the purchasing power of money. Also known as the purchasing power of income. If income remains constant and a good’s price falls, real income is said to rise, even though the number of monetary units (e.g., dollars) remains unchanged.
1202
Real interest rate
Nominal interest rate minus the expected rate of inflation.
1203
Real risk-free interest rate
The single-period interest rate for a completely risk-free security if no inflation were expected.
1204
Realizable (settlement) value
With reference to assets, the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal; with reference to liabilities, the undiscounted amount of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.
1205
Rebalancing
Adjusting the weights of the constituent securities in an index.
1206
Rebalancing policy
The set of rules that guide the process of restoring a portfolio’s asset class weights to those specified in the strategic asset allocation.
1207
Recession
A period during which real GDP decreases (i.e., negative growth) for at least two successive quarters, or a period of significant decline in total output, income, employment, and sales usually lasting from six months to a year.
1208
Recognition lag
The lag in government response to an economic problem resulting from the delay in confirming a change in the state of the economy.
1209
Recourse loan
A loan in which the lender has a claim against the borrower for any shortfall between the outstanding mortgage balance and the proceeds received from the sale of the property.
1210
Redemption yield
Yield-to-maturity Annual return that an investor earns on a bond if the investor purchases the bond today and holds it until maturity. It is the discount rate that equates the present value of the bond’s expected cash flows until maturity with the bond’s price. Also called yield-to-redemption or redemption yield.
1211
Redemptions
Withdrawals of funds by investors, as allowed by the notice period and other terms in the partnership agreement.
1212
Refinancing rate
A type of central bank policy rate.
1213
Registered bonds
Bonds for which ownership is recorded by either name or serial number.
1214
Regression analysis
A tool for examining whether a variable is useful for explaining another variable.
1215
Regression coefficients
The intercept and slope coefficient of a regression.
1216
Regret
The feeling that an opportunity has been missed; typically, an expression of hindsight bias.
1217
Regret-aversion bias
An emotional bias in which people tend to avoid making decisions that will result in action out of fear that the decision will turn out poorly.
1218
Relative dispersion
The amount of dispersion relative to a reference value or benchmark.
1219
Relative frequency
The absolute frequency of each unique value of the variable divided by the total number of observations of the variable.
1220
Relative price
The price of a specific good or service in comparison with those of other goods and services.
1221
Relative strength analysis
A comparison of the performance of one asset with the performance of another asset or a benchmark, based on changes in the ratio of the two assets’ prices over time.
1222
Relative strength index (RSI)
A technical analysis momentum oscillator that compares a security’s gains with its losses over a set period.
1223
Renewable resources
Resources that can be replenished, such as a forest.
1224
Rent
Payment for the use of property.
1225
Reorganization
Agreements made by a company in bankruptcy under which a company’s capital structure is altered and/or alternative arrangements are made for debt repayment; US Chapter 11 bankruptcy. The company emerges from bankruptcy as a going concern.
1226
Replication
The creation of an asset or portfolio from another asset, portfolio, and/or derivative.
1227
Repo
A form of collateralized loan involving the sale of a security with a simultaneous agreement by the seller to buy back the same security from the purchaser at an agreed-on price and future date. The party who sells the security at the inception of the repurchase agreement and buys it back at maturity is borrowing money from the other party, and the security sold and subsequently repurchased represents the collateral.
1228
Repo margin
The difference between the market value of the security used as collateral and the value of the loan. Also called haircut.
1229
Repo rate
The interest rate on a repurchase agreement.
1230
Representativeness bias
A belief perseverance bias in which people tend to classify new information based on past experiences and classifications.
1231
Repurchase agreement
A form of collateralized loan involving the sale of a security with a simultaneous agreement by the seller to buy the same security back from the purchaser at an agreed-on price and future date. The party who sells the security at the inception of the repurchase agreement and buys it back at maturity is borrowing money from the other party, and the security sold and subsequently repurchased represents the collateral.
1232
Repurchase date
The date when the party who sold the security at the inception of a repurchase agreement buys back the security from the cash lending counterparty.
1233
Repurchase price
The price at which the party who sold the security at the inception of the repurchase agreement buys back the security from the cash lending counterparty.
1234
Required margin
The yield spread over or under the reference rate such that an FRN is priced at par value on a rate reset date.
1235
Required rate of return
Market discount rate The rate of return required by investors given the risk of the investment in a bond; also called the required yield or the required rate of return.
1236
Required yield spread
The difference between the yield-to-maturity on a new bond and the benchmark rate; additional compensation required by investors for the difference in risk and tax status of a bond relative to a government bond. Sometimes called the spread over the benchmark.
1237
Resampling
A statistical method that repeatedly draws samples from the original observed data sample for the statistical inference of population parameters.
1238
Reserve accounts
Form of internal credit enhancement that relies on creating accounts and depositing in these accounts cash that can be used to absorb losses. Also called reserve funds
1239
Reserve funds
Reserve accounts Form of internal credit enhancement that relies on creating accounts and depositing in these accounts cash that can be used to absorb losses. Also called reserve funds.
1240
Reserve requirement
The requirement for banks to hold reserves in proportion to the size of deposits.
1241
Residual
The difference between an observation and its predicted value, where the predicted value is based on the estimated linear relation between the dependent and independent variables using sample data.
1242
Resistance
In technical analysis, a price range in which selling activity is sufficient to stop the rise in the price of a security.
1243
Responsible investing
An overall (umbrella) term for several investment strategies—ESG investing, SRI investing, thematic investing, and impact investing—that incorporate ESG analysis in their investment processes.
1244
Restricted payments
A bond covenant meant to protect creditors by limiting how much cash can be paid out to shareholders over time.
1245
Retracement
In technical analysis, a reversal in the movement of a security’s price such that it is counter to the prevailing longer-term price trend.
1246
Return-generating model
A model that can provide an estimate of the expected return of a security given certain parameters and estimates of the values of the independent variables in the model.
1247
Return on assets (ROA)
A profitability ratio calculated as net income divided by average total assets; indicates a company’s net profit generated per dollar invested in total assets.
1248
Return on equity (ROE)
A profitability ratio calculated as net income divided by average shareholders’ equity.
1249
Return on invested capital
A measure of the profitability of a company relative to the amount of capital invested by the equity- and debtholders.
1250
Return on sales
An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses. Also referred to as net profit margin.
1251
Return on total capital
A profitability ratio calculated as EBIT divided by the sum of short- and long-term debt and equity.
1252
Revaluation model
Under IFRS, the process of valuing long-lived assets at fair value, rather than at cost less accumulated depreciation. Any resulting profit or loss is either reported on the income statement and/or through equity under revaluation surplus.
1253
Revenue
The amount charged for the delivery of goods or services in the ordinary activities of a business over a stated period; the inflows of economic resources to a company over a stated period.
1254
Reversal pattern
A type of pattern used in technical analysis to predict the end of a trend and a change in the direction of a security’s price.
1255
Reverse repo
A repurchase agreement viewed from the perspective of the cash lending counterparty.
1256
Reverse stock split
A reduction in the number of shares outstanding with a corresponding increase in share price, but no change to the company’s underlying fundamentals.
1257
Revolving credit agreements
(also known as revolvers) The most reliable form of short-term bank borrowing facilities; they are in effect for multiple years (e.g., three to five years) and can have optional medium-term loan features.
1258
Rho
The sensitivity of the option price to the risk-free rate.
1259
Ricardian equivalence
An economic theory that implies that it makes no difference whether a government finances a deficit by increasing taxes or issuing debt.
1260
Risk
Exposure to uncertainty. The chance of a loss or adverse outcome as a result of an action, inaction, or external event.
1261
Risk averse
The assumption that an investor will choose the least risky alternative.
1262
Risk aversion
The degree of an investor’s inability and unwillingness to take risk.
1263
Risk budgeting
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
1264
Risk exposure
The state of being exposed or vulnerable to a risk. The extent to which an organization is sensitive to underlying risks.
1265
Risk governance
The top-down process and guidance that directs risk management activities to align with and support the overall enterprise
1266
Risk management
The process of identifying the level of risk an organization wants, measuring the level of risk the organization currently has, taking actions that bring the actual level of risk to the desired level of risk, and monitoring the new actual level of risk so that it continues to be aligned with the desired level of risk.
1267
Risk management framework
The infrastructure, process, and analytics needed to support effective risk management in an organization.
1268
Risk-neutral pricing
Sometimes said of derivatives pricing, uses the fact that arbitrage opportunities guarantee that a risk-free portfolio consisting of the underlying and the derivative must earn the riskfree rate.
1269
Risk-neutral probabilities
Weights that are used to compute a binomial option price. They are the probabilities that would apply if a risk-neutral investor valued an option.
1270
Risk premium
An extra return expected by investors for bearing some specified risk.
1271
Risk shifting
Actions to change the distribution of risk outcomes.
1272
Risk tolerance
The amount of risk an investor is willing and able to bear to achieve an investment goal.
1273
Risk transfer
Actions to pass on a risk to another party, often, but not always, in the form of an insurance policy.
1274
Robo-adviser
A machine-based analytical tool or service that provides technology-driven investment solutions through online platforms.
1275
Rule of 72
The principle that the approximate number of years necessary for an investment to double is 72 divided by the stated interest rate.
1276
Running yield
Current yield The sum of the coupon payments received over the year divided by the flat price; also called the income or interest yield or running yield.
1277
Safety-first rules
Rules for portfolio selection that focus on the risk that portfolio value or portfolio return will fall below some minimum acceptable level over some time horizon.
1278
Sales
Generally, a synonym for revenue; “sales” is generally understood to refer to the sale of goods, whereas “revenue” is understood to include the sale of goods or services.
1279
Sales risk
Uncertainty with respect to the quantity of goods and services that a company is able to sell and the price it is able to achieve; the risk related to the uncertainty of revenues.
1280
Sample
A subset of a population.
1281
Sample correlation coefficient
A standardized measure of how two variables in a sample move together. It is the ratio of the sample covariance to the product of the two variables’ standard deviations.
1282
Sample covariance
A measure of how two variables in a sample move together.
1283
Sample excess kurtosis
A sample measure of the degree of a distribution’s kurtosis in excess of the normal distribution’s kurtosis.
1284
Sample mean
The sum of the sample observations divided by the sample size.
1285
Sample selection bias
Bias introduced by systematically excluding some members of the population according to a particular attribute—for example, the bias introduced when data availability leads to certain observations being excluded from the analysis.
1286
Sample-size neglect
A type of representativeness bias in which financial market participants incorrectly assume that small sample sizes are representative of populations (or “real” data).
1287
Sample skewness
A sample measure of the degree of asymmetry of a distribution.
1288
Sample standard deviation
Sample standard deviation.
1289
Sample statistic
A quantity computed from or used to describe a sample.
1290
Sample variance
The sum of squared deviations around the mean divided by the degrees of freedom.
1291
Sampling
The process of obtaining a sample.
1292
Sampling distribution
The distribution of all distinct possible values that a statistic can assume when computed from samples of the same size randomly drawn from the same population.
1293
Sampling error
The difference between the observed value of a statistic and the estimate resulting from using subsets of the population.
1294
Sampling plan
The set of rules used to select a sample.
1295
Say on pay
A process whereby shareholders may vote on executive remuneration (compensation) matters.
1296
Scatter plot
A chart in which two variables are plotted along the axis and points on the chart represent pairs of the two variables. In regression, the dependent variable is plotted on the vertical axis and the independent variable is plotted along the horizontal axis. Also known as a scattergram and a scatter diagram.
1297
Scatter plot matrix
A tool for organizing scatter plots between pairs of variables, making it easy to inspect all pairwise relationships in one combined visual.
1298
Scenario analysis
Analysis that shows the changes in key financial quantities that result from given (economic) events, such as the loss of customers, the loss of a supply source, or a catastrophic event; a risk management technique involving examination of the performance of a portfolio under specified situations. Closely related to stress testing.
1299
Screening
The application of a set of criteria to reduce a set of potential investments to a smaller set having certain desired characteristics.
1300
Seasoned offering
An offering in which an issuer sells additional units of a previously issued security.
1301
Second-degree price discrimination
When the monopolist charges different per-unit prices using the quantity purchased as an indicator of how highly the customer values the product.
1302
Second lien
A secured interest in the pledged assets that ranks below first lien debt in both collateral protection and priority of payment.
1303
Secondary bond markets
Markets in which existing bonds are traded among investors.
1304
Secondary market
The market where securities are traded among investors.
1305
Secondary precedence rules
Rules that determine how to rank orders placed at the same time.
1306
Sector
A group of related industries (GICS definition).
1307
Sector indexes
Indexes that represent and track different economic sectors—such as consumer goods, energy, finance, health care, and technology—on either a national, regional, or global basis.
1308
Secured (“asset-based”) loan
A loan that is backed by specific, secured company assets.
1309
Secured bonds
Bonds secured by assets or financial guarantees pledged to ensure debt repayment in case of default.
1310
Secured debt
Debt in which the debtholder has a direct claim—a pledge from the issuer—on certain assets and their associated cash flows.
1311
Securitization
A process that involves moving assets into a special legal entity, which then uses the assets as guarantees to secure a bond issue.
1312
Securitized assets
Assets that are typically used to create asset-backed bonds; for example, when a bank securitizes a pool of loans, the loans are said to be securitized.
1313
Security characteristic line
A plot of the excess return of a security on the excess return of the market.
1314
Security market index
A portfolio of securities representing a given security market, market segment, or asset class.
1315
Security market line
(SML) The graph of the capital asset pricing model.
1316
Security selection
The process of selecting individual securities; typically, security selection has the objective of generating superior risk-adjusted returns relative to a portfolio’s benchmark.
1317
Self-attribution bias
A bias in which people take too much credit for successes (self-enhancing) and assign responsibility to others for failures (self-protecting).
1318
Self-control bias
A bias in which people fail to act in pursuit of their long-term, overarching goals because of a lack of self-discipline.
1319
Self-investment limits
With respect to investment limitations applying to pension plans, restrictions on the percentage of assets that can be invested in securities issued by the pension plan sponsor.
1320
Sell-side firm
A broker/dealer that sells securities and provides independent investment research and recommendations to their clients (i.e., buy-side firms).
1321
Semi-strong-form efficient market
A market in which security prices reflect all publicly known and available information.
1322
Semiannual bond basis yield
An annual rate having a periodicity of two; also known as a semiannual bond equivalent yield.
1323
Semiannual bond equivalent yield
Semiannual bond basis yield An annual rate having a periodicity of two; also known as a semiannual bond equivalent yield.
1324
Seniority ranking
Priority of payment of various debt obligations.
1325
Sensitivity analysis
Analysis that shows the range of possible outcomes as specific assumptions are changed.
1326
Separately managed account
(SMA) An investment portfolio managed exclusively for the benefit of an individual or institution.
1327
Serial maturity structure
Structure for a bond issue in which the maturity dates are spread out during the bond’s life; a stated number of bonds mature and are paid off each year before final maturity.
1328
Settlement
The process that occurs after a trade is completed, the securities are passed to the buyer, and payment is received by the seller.
1329
Settlement date
Date when the buyer makes cash payment and the seller delivers the security.
1330
Settlement price
The official price, designated by the clearinghouse, from which daily gains and losses will be determined and marked to market.
1331
Share repurchase
A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash.
1332
Shareholder activism
Strategies used by shareholders to attempt to compel a company to act in a desired manner.
1333
Shareholder engagement
The process whereby companies engage with their shareholders.
1334
Shareholders’ equity
Assets less liabilities; the residual interest in the assets after subtracting the liabilities.
1335
Sharpe ratio
The average return in excess of the risk-free rate divided by the standard deviation of return; a measure of the average excess return earned per unit of standard deviation of return.
1336
Shelf registration
A type of public offering that allows the issuer to file a single, all-encompassing offering circular that covers a series of bond issues.
1337
Short
The seller of an asset or derivative contract. Also refers to the position of being short an asset or derivative contract.
1338
Short position
A position in an asset or contract in which one has sold an asset one does not own, or in which a right under a contract can be exercised against oneself.
1339
Short-run average total cost
The curve describing average total cost when some costs are considered fixed.
1340
Short selling
A transaction in which borrowed securities are sold with the intention to repurchase them at a lower price at a later date and return them to the lender.
1341
Shortfall risk
The risk that portfolio value or portfolio return will fall below some minimum acceptable level over some time horizon.
1342
Shutdown point
The point at which average revenue is equal to the firm’s average variable cost.
1343
Side letters
Side agreements created between the GP and specific LPs. These agreements exist outside the LPA. These agreements provide additional terms and conditions related to the investment agreement.
1344
Simple interest
The interest earned each period on the original investment; interest calculated on the principal only.
1345
Simple linear regression (SLR)
A regression that summarizes the relation between the dependent variable and a single independent variable.
1346
Simple random sample
A subset of a larger population created in such a way that each element of the population has an equal probability of being selected to the subset.
1347
Simple random sampling
The procedure of drawing a sample to satisfy the definition of a simple random sample.
1348
Simple yield
The sum of the coupon payments plus the straight-line amortized share of the gain or loss, divided by the flat price.
1349
Simulation
Computer-generated sensitivity or scenario analysis that is based on probability models for the factors that drive outcomes.
1350
Simulation trial
A complete pass through the steps of a simulation.
1351
Single-step format
With respect to the format of the income statement, a format that does not subtotal for gross profit (revenue minus cost of goods sold).
1352
Sinking fund arrangement
Provision that reduces the credit risk of a bond issue by requiring the issuer to retire a portion of the bond’s principal outstanding each year.
1353
Situational influences
External factors, such as environmental or cultural elements, that shape our behavior.
1354
Skewed
Not symmetrical.
1355
Skewness
A quantitative measure of skew (lack of symmetry); a synonym of skew. It is computed as the average cubed deviation from the mean standardized by dividing by the standard deviation cubed.
1356
Slope coefficient
The coefficient of an independent variable that represents the average change in the dependent variable for a one-unit change in the independent variable.
1357
Small country
A country that is a price taker in the world market for a product and cannot influence the world market price.
1358
Smart beta
Involves the use of simple, transparent, rules-based strategies as a basis for investment decisions.
1359
Smart contract
A computer program that is designed to self-execute on the basis of pre-specified terms and conditions agreed to by parties to a contract.
1360
Socially responsible investing
An investment approach that excludes investments in companies or industries that deviate from an organization’s beliefs and sometimes includes investments with favorable environmental or social profiles.
1361
Soft-bullet covered bonds
Covered bonds for which bond default and payment acceleration of bond cash flows may be delayed upon sponsor default until a new final maturity date is reached.
1362
Solvency
With respect to financial statement analysis, the ability of a company to fulfill its long-term obligations.
1363
Solvency ratios
Ratios that measure a company’s ability to meet its long-term obligations.
1364
Solvency risk
The risk that an organization does not survive or succeed because it runs out of cash, even though it might otherwise be solvent.
1365
Sovereign bond
A bond issued by a national government. Also called “Sovereign.”
1366
Spearman rank correlation coefficient
A measure of correlation applied to ranked data.
1367
Special dividend
A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payment.
1368
Special purpose entity
A non-operating entity created to carry out a specified purpose, such as leasing assets or securitizing receivables; can be a corporation, partnership, trust, or limited liability partnership formed to facilitate a specific type of business activity. Also called special purpose vehicle, special purpose company, or variable interest entity.
1369
Special purpose vehicle
Special purpose entity A non-operating entity created to carry out a specified purpose, such as leasing assets or securitizing receivables; can be a corporation, partnership, trust, or limited liability partnership formed to facilitate a specific type of business activity. Also called special purpose vehicle, special purpose company, or variable interest entity.
1370
Specific identification method
An inventory accounting method that identifies which specific inventory items were sold and which remained in inventory to be carried over to later periods.
1371
Speculative demand for money
The demand to hold speculative money balances based on the potential opportunities or risks that are inherent in other financial instruments. Also called portfolio demand for money.
1372
Speculative money balances
Monies held in anticipation that other assets will decline in value.
1373
Split coupon bond
Deferred coupon bondBond that pays no coupons for its first few years but then pays a higher coupon than it otherwise normally would for the remainder of its life. Also called split coupon bond.
1374
Sponsored
A type of depository receipt in which the foreign company whose shares are held by the depository has a direct involvement in the issuance of the receipts
1375
Spot curve
A sequence of yields-to-maturity on zero-coupon bonds. Sometimes called zero or strip curve (because coupon payments are “stripped” off the bonds).
1376
Spot markets
Markets in which assets are traded for immediate delivery.
1377
Spot prices
The price of an asset for immediately delivery.
1378
Spot rates
A sequence of market discount rates that correspond to the cash flow dates; yields-to-maturity on zero-coupon bonds maturing at the date of each cash flow.
1379
Spread
In general, the difference in yield between different fixed-income securities. Often used to refer to the difference between the yield-to-maturity and the benchmark.
1380
Spread over the benchmark
Required yield spreadThe difference between the yield-to-maturity on a new bond and the benchmark rate; additional compensation required by investors for the difference in risk and tax status of a bond relative to a government bond. Sometimes called the spread over the benchmark.
1381
Spread risk
Bond price risk arising from changes in the yield spread on credit-risky bonds; reflects changes in the market’s assessment and/or pricing of credit migration (or downgrade) risk and market liquidity risk.
1382
Spurious correlation
Refers to: 1) correlation between two variables that reflects chance relationships in a particular dataset; 2) correlation induced by a calculation that mixes each of two variables with a third variable; and 3) correlation between two variables arising not from a direct relation between them but from their relation to a third variable.
1383
Stacked bar chart
An alternative form for presenting the frequency distribution of two categorical variables, where bars representing the sub-groups are placed on top of each other to form a single bar. Each sub-section is shown in a different color to represent the contribution of each sub-group, and the overall height of the stacked bar represents the marginal frequency for the category.
1384
Stackelberg model
A prominent model of strategic decision making in which firms are assumed to make their decisions sequentially.
1385
Stagflation
The combination of a high inflation rate with a high level of unemployment and a slowdown of the economy.
1386
Staggered boards
Election process whereby directors are typically divided into multiple classes that are elected separately in consecutive years—that is, one class every year.
1387
Stakeholder management
The identification, prioritization, and understanding of the interests of stakeholder groups and managing the company’s relationships with these groups.
1388
Stakeholders
Individuals or groups of individuals who may be affected either directly or indirectly by a decision and thus have an interest, or stake, in the decision.
1389
Standard deviation
The positive square root of the variance; a measure of dispersion in the same units as the original data.
1390
Standard error of the estimate
A measure of the fit of a regression line, calculated as the square root of the mean square error. Also known as the standard error of the regression and the root mean square error.
1391
Standard error of the forecast
A measure of the uncertainty associated with a forecasted value of the dependent variable that depends on the standard error of the estimate, the variability of the independent variable, the deviation of the forecasted independent variable from the mean in the regression, and the number of observations.
1392
Standard error of the slope coefficient
The standard error of the slope, which in a simple linear regression is the ratio of the model’s standard error of the estimate to the square root of the variation of the independent variable.
1393
Standard normal distribution
The normal density with mean (μ) equal to 0 and standard deviation (σ) equal to 1.
1394
Standardizing
A transformation that involves subtracting the mean and dividing the result by the standard deviation.
1395
Standards of conduct
Behaviors required by a group; established benchmarks that clarify or enhance a group’s code of ethics.
1396
Standing limit orders
A limit order at a price below market and which therefore is waiting to trade.
1397
Stated annual interest rate
A quoted interest rate that does not account for compounding within the year. Also called quoted interest rate.
1398
Statement of changes in equity
(statement of owners’ equity) A financial statement that reconciles the beginning-of-period and end-of-period balance sheet values of shareholders’ equity; provides information about all factors affecting shareholders’ equity. Also called statement of owners’ equity.
1399
Statement of financial condition
The financial statement that presents an entity’s current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims), as of a particular point in time (the date of the balance sheet).
1400
Statement of operations
A financial statement that provides information about a company’s profitability over a stated period of time.
1401
Static trade-off theory of capital structure
A theory pertaining to a company’s optimal capital structure. The optimal level of debt is found at the point where additional debt would cause the costs of financial distress to increase by a greater amount than the benefit of the additional tax shield.
1402
Statistic
A summary measure of a sample of observations.
1403
Statistically significant
A result indicating that the null hypothesis can be rejected; with reference to an estimated regression coefficient, frequently understood to mean a result indicating that the corresponding population regression coefficient is different from zero.
1404
Status quo bias
An emotional bias in which people do nothing (i.e., maintain the status quo) instead of making a change.
1405
Statutory voting
A common method of voting where each share represents one vote.
1406
Step-up coupon bond
Bond for which the coupon, fixed or floating, increases by specified margins at specified dates.
1407
Stochastic oscillator
A momentum indicator that compares a particular closing price of a security to a range of the security’s prices over a certain period of time.
1408
Stock dividend
A type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash.
1409
Stock split
An increase in the number of shares outstanding with a consequent decrease in share price, but no change to the company’s underlying fundamentals.
1410
Stop-loss order
Stop order An order in which a trader has specified a stop price condition. Also called stop-loss order.
1411
Stop order
An order in which a trader has specified a stop price condition. Also called stop-loss order.
1412
Store of value
The quality of tending to preserve value.
1413
Store of wealth
Goods that depend on the fact that they do not perish physically over time, and on the belief that others would always value the good.
1414
Straight-line method
A depreciation method that allocates evenly the cost of a long-lived asset less its estimated residual value over the estimated useful life of the asset.
1415
Straight voting
A shareholder voting process in which shareholders receive one vote for each share owned.
1416
Strategic analysis
Analysis of the competitive environment with an emphasis on the implications of the environment for corporate strategy.
1417
Strategic asset allocation
The set of exposures to IPS-permissible asset classes that is expected to achieve the client’s long-term objectives given the client’s investment constraints.
1418
Stratified random sampling
A procedure that first divides a population into subpopulations (strata) based on classification criteria and then randomly draws samples from each stratum in sizes proportional to that of each stratum in the population.
1419
Street convention
A yield measure that neglects weekends and holidays; the internal rate of return on cash flows assuming payments are made on the scheduled dates, even when the scheduled date falls on a weekend or holiday.
1420
Stress testing
A specific type of scenario analysis that estimates losses in rare and extremely unfavorable combinations of events or scenarios.
1421
Strong-form efficient market
A market in which security prices reflect all public and private information.
1422
Structural (or cyclically adjusted) budget deficit
The deficit that would exist if the economy was at full employment (or full potential output).
1423
Structural subordination
Arises in a holding company structure when the debt of operating subsidiaries is serviced by the cash flow and assets of the subsidiaries before funds can be passed to the holding company to service debt at the parent level.
1424
Structured data
Data that are highly organized in a pre-defined manner, usually with repeating patterns.
1425
Structured financial instrument
A financial instrument that shares the common attribute of repackaging risks. Structured financial instruments include asset-backed securities, collateralized debt obligations, and other structured financial instruments such as capital protected, yield enhancement, participation, and leveraged instruments.
1426
Subjective probability
A probability drawing on personal or subjective judgment.
1427
Subordinated debt
A class of unsecured debt that ranks below a firm’s senior unsecured obligations.
1428
Subordination
Form of internal credit enhancement that relies on creating more than one bond tranche and ordering the claim priorities for ownership or interest in an asset between the tranches. The ordering of the claim priorities is called a senior/subordinated structure, where the tranches of highest seniority are called senior followed by subordinated or junior tranches.
Also called credit tranching.
1429
Substitutes
Said of two goods or services such that if the price of one increases the demand for the other tends to increase, holding all other things equal (e.g., butter and margarine).
1430
Sum of squares error (SSE)
The sum of the squared deviations of (1) the value of the dependent variable and (2) the value of the dependent variable based on the estimated regression line. Also referred to as the residual sum of squares
1431
Sum of squares regression (SSR)
The sum of the squared deviations of (1) the value of the dependent variable based on the estimated regression line and (2) the mean of the dependent variable.
1432
Sum of squares total (SST)
The sum of the squared deviations of the dependent variable from its mean; the variation of the dependent variable. Also referred to as the total sum of squares
1433
Sunk cost
A cost that has already been incurred.
1434
Supervised learning
A machine learning approach that makes use of labeled training data.
1435
Supply shock
A typically unexpected disturbance to supply.
1436
Support
In technical analysis, a price range in which buying activity is sufficient to stop the decline in the price of a security.
1437
Support tranches
Classes or tranches in CMOs that protect PAC tranches from prepayment risk.
1438
Supranational bond
A bond issued by a supranational agency such as the World Bank.
1439
Surety bond
Form of external credit enhancement whereby a rated and regulated insurance company guarantees to reimburse bondholders for any losses incurred up to a maximum amount if the issuer defaults.
1440
Survey approach
An estimate of the equity risk premium that is based on estimates provided by a panel of finance experts.
1441
Survivorship bias
Relates to the inclusion of only current investment funds in a database. As such, the returns of funds that are no longer available in the marketplace (have been liquidated) are excluded from the database. In addition, backfill bias is another problem, whereby certain surviving hedge funds may be added to databases and various hedge fund indexes only after they are initially successful and start to report their returns.
1442
Sustainability linked loans
These are any types of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines, or letters of credit) that incentivize the borrower’s achievement of ambitious, pre-determined sustainability performance objectives.
1443
Sustainable growth rate
The rate of dividend (and earnings) growth that can be sustained over time for a given level of return on equity, keeping the capital structure constant and without issuing additional common stock.
1444
Sustainable investing
A term used in a similar context to responsible investing, but its key focus is on factoring in sustainability issues while investing.
1445
Sustainable rate of economic growth
The rate of increase in the economy’s productive capacity or potential GDP.
1446
Swap contract
An agreement between two parties to exchange a series of future cash flows.
1447
Syndicated loan
A loan from a group of lenders to a single borrower.
1448
Syndicated offering
A bond issue underwritten by a group of investment banks.
1449
Systematic risk
Risk that affects the entire market or economy; it cannot be avoided and is inherent in the overall market. Systematic risk is also known as non-diversifiable or market risk.
1450
Systematic sampling
A procedure of selecting every kth member until reaching a sample of the desired size. The sample that results from this procedure should be approximately random.
1451
Tactical asset allocation
The decision to deliberately deviate from the strategic asset allocation in an attempt to add value based on forecasts of the near-term relative performance of asset classes.
1452
Target capital structure
A company’s chosen proportions of debt and equity.
1453
Target independent
A bank’s ability to determine the definition of inflation that they target, the rate of inflation that they target, and the horizon over which the target is to be achieved.
1454
Target semideviation
A measure of downside risk, calculated as the square root of the average of the squared deviations of observations below the target (also called target downside deviation).
1455
Tariffs
Taxes that a government levies on imported goods.
1456
Tax base
The amount at which an asset or liability is valued for tax purposes.
1457
Tax expense
An aggregate of an entity’s income tax payable (or recoverable in the case of a tax benefit) and any changes in deferred tax assets and liabilities. It is essentially the income tax payable or recoverable if these had been determined based on accounting profit rather than taxable income.
1458
Tax loss carry forward
A taxable loss in the current period that may be used to reduce future taxable income.
1459
Taxable income
The portion of an entity’s income that is subject to income taxes under the tax laws of its jurisdiction.
1460
Taxable temporary differences
Temporary differences that result in a taxable amount in a future period when determining the taxable profit as the balance sheet item is recovered or settled.
1461
Technical analysis
A form of security analysis that uses price and volume data, often displayed graphically, in decision making.
1462
Technology
The process a company uses to transform inputs into outputs.
1463
Tender offer
Corporate takeover mechanism that involves shareholders selling their interests directly to the group seeking to gain control.
1464
Tenor
The time-to-maturity for a bond or derivative contract. Also called term to maturity.
1465
Term maturity structure
Structure for a bond issue in which the bond’s notional principal is paid off in a lump sum at maturity.
1466
Term structure
Maturity structure A factor explaining the differences in yields on similar bonds; also called term structure.
1467
Term structure of credit spreads
The relationship between the spreads over the “risk-free” (or benchmark) rates and times-to-maturity.
1468
Term structure of yield volatility
The relationship between the volatility of bond yields-to-maturity and times-to-maturity.
1469
Terminal stock value
The expected value of a share at the end of the investment horizon—in effect, the expected selling price. Also called terminal value.
1470
Terminal value
The expected value of a share at the end of the investment horizon—in effect, the expected selling price.
1471
Terms of trade
The ratio of the price of exports to the price of imports, representing those prices by export and import price indexes, respectively.
1472
Test of the mean of the differences
A statistical test for differences based on paired observations drawn from samples that are dependent on each other.
1473
Text analytics
The use of computer programs to analyze and derive meaning from typically large, unstructured text- or voice-based datasets.
1474
Thematic investing
An ESG investment approach that focuses on investing in themes or assets specifically relating to ESG factors, such as clean energy, green technology, or sustainable agriculture.
1475
Thin-Tailed
Describes a distribution that has relatively less weight in the tails than the normal distribution (also called platykurtic).
1476
Third-degree price discrimination
When the monopolist segregates customers into groups based on demographic or other characteristics and offers different pricing to each group.
1477
Time-period bias
The possibility that when we use a time-series sample, our statistical conclusion may be sensitive to the starting and ending dates of the sample.
1478
Time-series data
A sequence of observations for a single observational unit of a specific variable collected over time and at discrete and typically equally spaced intervals of time (such as daily, weekly, monthly, annually, or quarterly).
1479
Time tranching
The creation of classes or tranches in an ABS/MBS that possess different (expected) maturities.
1480
Time value
The difference between the market price of the option and its intrinsic value.
1481
Time value decay
Said of an option when, at expiration, no time value remains and the option is worth only its exercise value.
1482
Time value of money
The principles governing equivalence relationships between cash flows with different dates.
1483
Time-weighted rate of return
The compound rate of growth of one unit of currency invested in a portfolio during a stated measurement period; a measure of investment performance that is not sensitive to the timing and amount of withdrawals or additions to the portfolio.
1484
Tokenization
The process of representing ownership rights to physical assets on a blockchain or distributed ledger.
1485
Top-down analysis
An investment selection approach that begins with consideration of macroeconomic conditions and then evaluates markets and industries based upon such conditions.
1486
Total comprehensive income
The change in equity during a period resulting from transaction and other events, other than those changes resulting from transactions with owners in their capacity as owners.
1487
Total cost
The summation of all costs, for which costs are classified as fixed or variable.
1488
Total factor productivity
A scale factor that reflects the portion of growth unaccounted for by explicit factor inputs (e.g., capital and labor).
1489
Total fixed cost
The summation of all expenses that do not change as the level of production varies.
1490
Total invested capital
The sum of market value of common equity, book value of preferred equity, and face value of debt.
1491
Total probability rule
A rule explaining the unconditional probability of an event in terms of probabilities of the event conditional on mutually exclusive and exhaustive scenarios.
1492
Total probability rule for expected value
A rule explaining the expected value of a random variable in terms of expected values of the random variable conditional on mutually exclusive and exhaustive scenarios.
1493
Total return
Measures the price appreciation, or percentage change in price of the securities in an index or portfolio, plus any income received over the period.
1494
Total return index
An index that reflects the price appreciation or percentage change in price of the constituent securities plus any income received since inception.
1495
Total return swap
A swap in which one party agrees to pay the total return on a security. Often used as a credit derivative, in which the underlying is a bond.
1496
Total variable cost
The summation of all variable expenses.
1497
Tracking error
The standard deviation of the differences between a portfolio’s returns and its benchmark’s returns; a synonym of active risk.
1498
Tracking risk
The standard deviation of the differences between a portfolio’s returns and its benchmarks returns. Also called tracking error.
1499
Trade creation
When regional integration results in the replacement of higher cost domestic production by lower cost imports from other members.
1500
Trade credit
A spontaneous form of credit in which a purchaser of the goods or service is financing its purchase by delaying the date on which payment is made.
1501
Trade diversion
When regional integration results in lower-cost imports from non-member countries being replaced with higher-cost imports from members.
1502
Trade payables
Amounts that a business owes to its vendors for goods and services that were purchased from them but which have not yet been paid.
1503
Trade protection
Government policies that impose restrictions on trade, such as tariffs and quotas.
1504
Trade surplus (deficit)
When the value of exports is greater (less) than the value of imports.
1505
Trading securities
Under US GAAP, a category of debt securities held by a company with the intent to trade them. Also called held-for-trading securities.
1506
Traditional investment markets
Markets for traditional investments, which include all publicly traded debts and equities and shares in pooled investment vehicles that hold publicly traded debts and/or equities.
1507
Transactions money balances
Money balances that are held to finance transactions.
1508
Transfer payments
Welfare payments made through the social security system that exist to provide a basic minimum level of income for low-income households.
1509
Transparency
Said of something (e.g., a market) in which information is fully disclosed to the public and/or regulators.
1510
Treasury stock method
A method for accounting for the effect of options (and warrants) on earnings per share (EPS) that specifies what EPS would have been if the options and warrants had been exercised and the company had used the proceeds to repurchase common stock.
1511
Tree-Map
Another graphical tool for displaying categorical data. It consists of a set of colored rectangles to represent distinct groups, and the area of each rectangle is proportional to the value of the corresponding group.
1512
Trend
A long-term pattern of movement in a particular direction.
1513
Treynor ratio
A measure of risk-adjusted performance that relates a portfolio’s excess returns to the portfolio’s beta.
1514
Triangle pattern
In technical analysis, a continuation chart pattern that forms as the range between high and low prices narrows, visually forming a triangle.
1515
Trimmed mean
A mean computed after excluding a stated small percentage of the lowest and highest observations.
1516
Trimodal
A distribution that has the three most frequently occurring values.
1517
Triple bottom
In technical analysis, a reversal pattern that results when the price forms three troughs at roughly the same price level. A triple bottom is used to predict a change from a downtrend to an uptrend.
1518
Triple top
In technical analysis, a reversal pattern that results when the price forms three peaks at roughly the same price level. A triple top is used to predict a change from an uptrend to a downtrend.
1519
True yield
The internal rate of return on cash flows using the actual calendar, including weekends and bank holidays.
1520
Trust deed
The governing legal credit agreement, typically incorporated by reference in the prospectus. Also called bond indenture
1521
Turn-of-the-year effect
Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first five trading days in January.
1522
Two-dimensional rectangular array
A popular form for organizing data for processing by computers or for presenting data visually. It is comprised of columns and rows to hold multiple variables and multiple observations, respectively (also called a data table).
1523
Two-fund separation theorem
The theory that all investors regardless of taste, risk preferences, and initial wealth will hold a combination of two portfolios or funds: a risk-free asset and an optimal portfolio of risky assets.
1524
Two-sided hypothesis test
A test in which the null hypothesis is rejected in favor of the alternative hypothesis if the evidence indicates that the population parameter is either smaller or larger than a hypothesized value; occurs when the alternative hypothesis is stated as not equal to the hypothesized population parameters.
1525
Two-way table
Contingency table A tabular format that displays the frequency distributions of two or more categorical variables simultaneously and is used for finding patterns between the variables. A contingency table for two categorical variables is also known as a two-way table.
1526
Two-week repo rate
The interest rate on a two-week repurchase agreement; may be used as a policy rate by a central bank.
1527
Type I error
The error of rejecting a true null hypothesis; a false positive.
1528
Type II error
The error of not rejecting a false null hypothesis; false negative.
1529
Unanticipated (unexpected) inflation
The component of inflation that is a surprise.
1530
Uncommitted lines of credit
The least reliable form of bank borrowing in which a bank offers, without formal commitment, a line of credit for an extended period of time but reserves the right to refuse any request for its use.
1531
Unconditional probability
The probability of an event not conditioned on another event.
1532
Underemployed
A person who has a job but has the qualifications to work a significantly higher-paying job.
1533
Underlying
An asset that trades in a market in which buyers and sellers meet, decide on a price, and the seller then delivers the asset to the buyer and receives payment. The underlying is the asset or other derivative on which a particular derivative is based. The market for the underlying is also referred to as the spot market
1534
Underwriter
A firm, usually an investment bank, that takes the risk of buying the newly issued securities from the issuer and then reselling them to investors or to dealers, thus guaranteeing the sale of the securities at the offering price negotiated with the issuer.
1535
Underwritten offering
A type of securities issue mechanism in which the investment bank guarantees the sale of the securities at an offering price that is negotiated with the issuer. Also known as firm commitment offering.
1536
Unearned revenue
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service. Also called deferred revenue or deferred income.
1537
Unemployed
People who are actively seeking employment but are currently without a job.
1538
Unemployment rate
The ratio of unemployed to the labor force.
1539
Unexpected inflation
The component of inflation that is a surprise.
1540
Unimodal
A distribution with a single value that is most frequently occurring.
1541
Unit elastic
An elasticity with a magnitude of negative one. Also called unitary elastic.
1542
Unit labor cost
The average labor cost to produce one unit of output.
1543
Unit normal distribution
The normal density with mean (μ) equal to 0 and standard deviation (σ) equal to 1.
1544
Unitranche debt
Consists of a hybrid or blended loan structure that combines different tranches of secured and unsecured debt into a single loan with a single, blended interest rate.
1545
Units-of-production method
A depreciation method that allocates the cost of a long-lived asset based on actual usage during the period.
1546
Univariate distribution
A distribution that specifies the probabilities for a single random variable.
1547
Universal owners
Long-term investors, such as pension funds, that have significant assets invested in globally diversified portfolios.
1548
Unlimited funds
An unlimited funds environment assumes that the company can raise the funds it wants for all profitable investments simply by paying the required rate of return.
1549
Unsecured debt
Debt that gives the debt holder only a general claim on an issuer’s assets and cash flow.
1550
Unsponsored
A type of depository receipt in which the foreign company whose shares are held by the depository has no involvement in the issuance of the receipts.
1551
Unstructured data
Data that do not follow any conventionally organized forms.
1552
Unsupervised learning
A machine learning approach that does not make use of labeled training data.
1553
Up transition probability
The probability that an asset’s value moves up.
1554
Uptrend
A pattern that occurs when the price of an asset moves higher over a period of time.
1555
Validity instructions
Instructions which indicate when the order may be filled.
1556
Valuation allowance
A reserve created against deferred tax assets, based on the likelihood of realizing the deferred tax assets in future accounting periods.
1557
Valuation ratios
Ratios that measure the quantity of an asset or flow (e.g., earnings) in relation to the price associated with a specified claim (e.g., a share or ownership of the enterprise).
1558
Value at risk
A money measure of the minimum value of losses expected during a specified time period at a given level of probability.
1559
Value investors
With reference to equity investors, investors who are focused on paying a relatively low share price in relation to earnings or assets per share.
1560
VaR
Value at risk A money measure of the minimum value of losses expected during a specified time period at a given level of probability.
1561
Variable
A characteristic or quantity that can be measured, counted, or categorized and that is subject to change (also called a field, an attribute, or a feature).
1562
Variable costs
Costs that fluctuate with the level of production and sales.
1563
Variance
The expected value (the probability-weighted average) of squared deviations from a random variable's expected value.
1564
Variation margin
Additional margin that must be deposited in an amount sufficient to bring the balance up to the initial margin requirement.
1565
Veblen goods
Goods that increase in desirability with increasing price.
1566
Vega
A measure of the sensitivity of an option’s price to changes in the underlying’s volatility.
1567
Venture capital
Investments that provide “seed” or startup capital, early-stage financing, or later-stage financing (including mezzanine-stage financing) to companies that are in early development stages and require additional capital for expansion or preparation for an initial public offering.
1568
Venture capital fund
A hedge fund that seeks to buy, optimize, and ultimately sell portfolio companies to generate profits. See private equity fund.
1569
Venture capital funds
Funds that seek to invest in, optimize, and eventually exit portfolio companies to generate profits. See private equity funds.
1570
Vertical analysis
Common-size analysis using only one reporting period or one base financial statement; for example, an income statement in which all items are stated as percentages of sales.
1571
Vertical demand schedule
Implies that some fixed quantity is demanded, regardless of price.
1572
Visual technique
The most common and readily available method of initial data assessment. Experts in pattern recognition maintain that the visual (or “eyeball”) technique is still the most effective way of searching for recognizable patterns.
1573
Visualization
The presentation of data in a pictorial or graphical format for the purpose of increasing understanding and for gaining insights into the data.
1574
Volatility
The standard deviation of the continuously compounded returns on the underlying asset.
1575
Voluntarily unemployed
A person voluntarily outside the labor force, such as a jobless worker refusing an available vacancy.
1576
Voluntary export restraint
A trade barrier under which the exporting country agrees to limit its exports of the good to its trading partners to a specific number of units.
1577
Vote by proxy
A mechanism that allows a designated party—such as another shareholder, a shareholder representative, or management—to vote on the shareholder’s behalf.
1578
Warrant
Attached option that gives its holder the right to buy the underlying stock of the issuing company at a fixed exercise price until the expiration date.
1579
Waterfall
Represents the distribution method that defines the order in which allocations are made to LPs and GPs. There are two major types of waterfall: deal by deal (or American) and whole of fund (or European).
1580
Weak-form efficient market hypothesis
The belief that security prices fully reflect all past market data, which refers to all historical price and volume trading information.
1581
Wealth effect
An increase (decrease) in household wealth increases (decreases) consumer spending out of a given level of current income.
1582
Web-based lender
A lender that operates primarily on the internet, offering loans in relatively small amounts, typically to small businesses in need of cash.
1583
Weighted average cost method
An inventory accounting method that averages the total cost of available inventory items over the total units available for sale.
1584
Weighted average cost of capital
A weighted average of the after-tax required rates of return on a company’s common stock, preferred stock, and long-term debt, where the weights are the fraction of each source of financing in the company’s target capital structure.
1585
Weighted average coupon rate
Weighting the mortgage rate of each mortgage loan in the pool by the percentage of the mortgage outstanding relative to the outstanding amount of all the mortgages in the pool.
1586
Weighted average life
A measure that gives investors an indication of how long they can expect to hold the MBS before it is paid off; the convention-based average time to receipt of all principal repayments. Also called average life.
1587
Weighted average maturity
Weighting the remaining number of months to maturity for each mortgage loan in the pool by the amount of the outstanding mortgage balance.
1588
Weighted mean
An average in which each observation is weighted by an index of its relative importance.
1589
Winsorized mean
A mean computed after assigning a stated percentage of the lowest values equal to one specified low value and a stated percentage of the highest values equal to one specified high value.
1590
Word cloud
A visual device for representing textual data, which consists of words extracted from a source of textual data. The size of each distinct word is proportional to the frequency with which it appears in the given text (also known as tag cloud).
1591
Working capital
The difference between current assets and current liabilities.
1592
Working capital management
The management of a company’s short-term assets (such as inventory) and short-term liabilities (such as money owed to suppliers).
1593
World price
The price prevailing in the world market.
1594
Yield duration
The sensitivity of the bond price with respect to the bond’s own yield-to-maturity.
1595
Yield to maturity
Annual return that an investor earns on a bond if the investor purchases the bond today and holds it until maturity. It is the discount rate that equates the present value of the bond’s expected cash flows until maturity with the bond’s price. Also called yield to redemption or redemption yield.
1596
Yield-to-redemption
Yield-to-maturity Annual return that an investor earns on a bond if the investor purchases the bond today and holds it until maturity. It is the discount rate that equates the present value of the bond’s expected cash flows until maturity with the bond’s price. Also called yield-to-redemption or redemption yield.
1597
Yield-to-worst
The lowest of the sequence of yields-to-call and the yield-to-maturity.
1598
Zero-coupon bond
A bond that does not pay interest during its life. It is issued at a discount to par value and redeemed at par. Also called pure discount bond.
1599
Zero-volatility spread (Z-spread)
Calculates a constant yield spread over a government (or interest rate swap) spot curve.
