In context of municipal bonds, refers to the issuer's present and future ability to create sufficient tax revenue to fulfill its contractual obligations, accounting for municipal income and property values.
In context of taxation, notion that tax rates should be determined according to income or wealth.
The component of the return that is not
due to systematic influences (market-wide influences). In other words, abnormal returns are above those predicted by the market movement alone. Related: excess returns.
Used in context of general equities. Securities are "absorbed" as long as there are corresponding orders to buy and sell. The market has reached the absorption point when further assimilation is impossible without an adjustment in price. See: Sell the book.
Any depreciation method that
produces larger deductions for depreciation in the early years of a
asset's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.
Contractual agreement instigated when the drawee of a time draft "accepts" the draft by writing the word "accepted" thereon. The drawee assumes responsibility as the acceptor and for payment at maturity. See: Letter of credit and banker's acceptance.
A signed statement from an independent public accountant after examination of a firm's records and accounts. The opinion may be unqualified or qualified. See: Qualified opinion.
Refers to an individual whose net worth, or joint net worth with a
spouse, exceeds $1,000,000; or whose
individual income exceeded $200,000 or whose joint income with a
spouse exceeded $300,000 in each of the 2
most recent years and can be expected to meet that income in the
current year. More details of the definitions for investors other that individuals are
found in Regulation D of the Securities and Exchange Commission.
An accounting system that tries to match the recognition of revenues earned with the expenses incurred in generating those revenues. It ignores the timing of the cash flows associated with revenues and expenses.
In the context of accounting, practice in which expenses and income are accounted for as if they are earned or incurred, whether or not they have been received or paid. Antithesis of cash basis accounting.
Interest that accumulates on savings bonds from the date of purchase until the date of redemption or final maturity, whichever comes first. Series A, B, C, D, E, EE, F, I, and J are discount or accrual bonds, meaning principal and interest are paid when the bonds are redeemed. Series G, H, HH, and K are current-income bonds, and the semiannual interest paid to their holders is not included in accrued discount.
Applies mainly to convertible securities. Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bond's price plus "accrued interest," calculated by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder receives $40 in coupon payments per bond semiannually and sells the bond one-quarter of the way into the coupon period, the buyer pays the seller $10 as the latter's proportion of interest earned.)
Broker/analyst recommendation that could mean slightly different things
depending on the broker/analyst. In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security that might skyrocket. A buy recommendation, but not an urgent buy.
An approximate measure of the liability of a pension plan in the event of a termination at the date the calculation is performed. Related: Projected benefit obligation.
In the context of investments, refers to the purchase by an institutional broker of a large number of shares over a period of time in order to avoid pushing the price of that share up.
Refers to a brokerage account in which many transactions occur. Brokerage firms may levy a fee if an account generates an inadequate level of activity.
A strategy that uses available information and forecasting techniques to seek better performance than a buy and hold portfolio. Related: Passive portfolio strategy.
Advance-Decline, or measurement of the number of issuestrading above their previous closing prices
less the number trading below their previous closing prices over a particular
period. As a technical measure of market
breadth, the steepness of the AD line indicates whether a strong bull
or bear market is under way.
Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limits the adjustment.
A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment rate caps.
Price from which to calculate and derive capital gains or losses upon sale of an asset. Account actions such as any stock splits that have occurred since the initial purchase must be accounted for.
The account balance for a margin account that is calculated by combining the balance owed to a broker with any outstanding balance in the special miscellaneous account, and any paper profits on short accounts.
The net present value analysis of an asset if financed solely by equity (present value of unlevered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leveraged buyout.
A promise to sell an asset before the seller has lined up purchase of the asset. This seller can offsetrisk by purchasing a futures contract to fix the sales price approximately.
Refers to the Advance Computerized Execution System, run by Nasdaq. ACES automates trades between order entry and market makerfirms that have established trading relationships with each other. Securities are designated as specified for automatic execution.
An independent auditor's opinion expressing that a firm's financial statements do not reflect the company's position accurately. See also: Qualified opinion.
Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company.
A contractual clause in a mortgage agreement stating that any additional mortgageable property attained by the borrower after the mortgage is signed will be regarded as additional security for the obligation addressed in the mortgage.
An account between two broker/dealers that remains intact after 30 days after the settlement date. The receiving firm must adjust its capital as it can no longer treat this account as an assets.
In context of general equities, buying or selling for the account and risk of a customer. Generally, an agent, or broker, acts as intermediary between buyer and seller, taking no financial risk personally or as a firm, and charging a commission for the service. The broker represents a customer buyer/seller to a customer seller/buyer and does not act as principal for the firm's own trading account. Antithesis of principal. See: Dealer.
A form of organization commonly used by foreign banks to enter the US market.
An agency bank cannot accept deposits or extend loans
in its own name; it acts as agent for the parent bank. It is also the financial
institution that issuesADRs
to the general market.
The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debt financing.
Securitiesissued by federally related institutions and U.S. government-sponsored entities. Such agencies were created to reduce borrowing costs for certain sectors of the economy, such as agriculture.
Process in corporate
financial planning whereby the smaller investment proposals of
each of the firm's operational units are aggregated and effectively treated as a whole.
Used in context of general equities. For a customer it means working to buy or sell one's stock, with an emphasis on execution over price. For a trader it means acting in a way that puts the firm's capital at higher risk through paying a higher price, selling cheaper, or making a larger short sale or purchase than the trader would under normal circumstances.
A table of accounts receivable broken down into age categories (such as 0-30 days, 30-60 days, and 60-90 days), which is used to determine if customer payments are keeping close to schedule.
A contract among participating members
of a syndicate that defines the members'
proportionate liability, which is usually
limited to and based on the participants' level of involvement. The contract
outlines the payment schedule on the settlement
date. Compare: Underwriting
agreement.
The Association for Investment Management and Research (AIMR) Performance Presentation Standards Implementation Committee is charged with the responsibility to interpret, revise, and update the AIMR Performance Presentation Standards (AIMR-PPS(TM) for portfolio performance presentations.
Used in context of general equities. A limited price order that is to be executed in its entirety or not at all (no partial transaction), and thus is testing the strength/conviction of the counterparty. Unlike an FOK order, an AON order is not to be treated as cancelled if not executed as soon as it is represented in the trading crowd, but instead remains alive until executed or cancelled. The making of "all or none" bids or offers in stocks is prohibited, and the making of "all or none" bids or offers in bonds is subject to the restrictions of Rule 61. AON orders are not shown on the specialist's book because they cannot be traded in pieces. Antithesis of any-part-of order. See: FOK order.
The term used to describe a spread in the options market that generates such a large commission that the client is unlikely to make a profit even if the markets move as the investor anticipated.
Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund'sexcess return on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 25%, and the short-term interest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The expected excess return given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen Index. Related: Risk-adjusted return.
Regression usually run over 36-60 months of data: Return-Treasury bill= alpha + beta (S&P 500 - Treasury bill) + error. The alpha is the intercept. Note that the benchmark does not necessarily have to be the S&P 500. A mutual fund specializing in international investment might be benchmarked to a broader world market index, such as the MSCI World Index.
Refers to investments in hedge funds. Many hedge funds pursue strategies that are uncommon relative to mutual funds. Examples of alternative investment strategies are:
long-short equity, event driven, statistical arbitrage, fixed income arbitrage, convertible arbritage, short bias, global macro, and equity market neutral.
Used in context of general equities. Order giving a broker a choice between two courses of action, either to buy or sell, never both. Execution of one course automatically eliminates the other. An example is a combination buy limit/buy stop order, where the buy limit is below the current market and the buy stop is above. If the order is for one unit of trading, when one part of the order is executed on the occurrence of one alternative, the order on the other alternative is to be treated as cancelled. If the order is for an amount of more than one unit of trading, the number of units executed determines the amount of the alternative order to be treated as cancelled. See: Either-or order.
Certificates issued by a US depository bank, representing foreign shares
held by the bank, usually by a branch or correspondent in the country of issue.
One ADR may represent a portion of a foreign share, one share or a bundle
of shares of a foreign corporation. If the ADR's are "sponsored,"
the corporation provides financial information and other assistance to the
bank and may subsidize the administration of the ADR "Unsponsored"
ADRs do not receive such assistance. ADRs are subject to the same currency,
political, and economic risks as the underlying
foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares,
adjusted for the SDR/ordinary
ratio essentially equal. American
depository shares (ADS) are a similar form of certification.
Fees associated with the creating or releasing of ADRs from ordinary shares, charged by the commercial banks with correspondent banks in the international sites.
Securities certificates issued in the US
by a transfer agent acting on behalf
of the foreign issuer. The certificates represent
claims to foreign equities.
Stock exchange with the third
highest volume of trading in the US Located at 86 Trinity Place in downtown
Manhattan. The bulk of trading on AMEX consists of index
options (computer technology index, institutional index, major market
index) and shares of small to medium-sized
companies are predominant. Recently merged with Nasdaq
See: Curb.
All currency issued by the Bureau of the Mint and intended as a medium of exchange. Coins sold by the Bureau of the Mint at premium prices are not included; uncirculated coin sets sold at face value plus handling charge are included.
Exchange that comprises the AEX-Effectenbeurs, the AEX-Optiebeurs (formerly the European Options Exchange or EOE) and the AEX-Agrarische Termijnmarkt. AEX-Data Services is the operating company responsible for the dissemination of data from the Amsterdam Exchange via its integrated Mercury 2000 system.
Employee of a brokerage or fund management house who studies companies and makes buy-and-sell recommendations on stocks of these companies. Most specialize in a specific industry.
Date on which particular news concerning a given company is announced to the public. Used in event studies, which researchers use to evaluate the economic impact of events of interest.
The technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. The process is known as annualizing.
For investment companies, the management fee and "other expenses," including the expenses for maintaining shareholder records, providing shareholders with financial statements, and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are also included.
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).
There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY), includes the effect of compounding interest.
Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, as well as balance sheet, income statement, and cash flow statement information. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K.
If stock X appreciates 1.5% in one month, the annualized gain for that stock over a twelve month period is 121.5% = 18%. Compounded over the 12 month period, the gain is (1.015)^12 -1 = 19.6%.
To commence a series of payments from the capital that has accumulated in an annuity. The payments may be a fixed amount, for a fixed period of time, or for a lifetime.
In R/S Analysis, an
anti-persistent time series reverses itself more often than a random series would. If the
system had been up in the previous period, it is more likely that it will be down in the
next period and vice versa. Also called pink noise, or 1/f noise. See: Persistence, R/S Analysis, Hurst Exponent, Joseph Effect, Noah Effect.
The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactions costs.
An alternative model to the capital asset pricing model developed by Stephen Ross and based purely on arbitrage arguments. The APT implies that there are multiple risk factors that need to be taken into account when calculating risk-adjusted performance or alpha.
Used in context of general equities. "Can a new customer still participate on opposing side of the trade from that which the first customer initiated?", Inquiring as to whether any portion of that trade is still available See: Open.
Also known as a TRading INdex (TRIN). The index
is usually calculated as the number of advancing issues divided by the number of declining issues. This, in turn, is divided by the advancing volume divided by the declining volume. If there is considerably more advancing volume relative to declining volume this will tend to reduce the index (i.e. increase the denominator). Hence, a value less than 1.0 is bullish while values greater than 1.0 indicate bearish demand. The index often is smoothed with a simple moving average.
A chart pattern that depicts that each peak in a security's price over a period of time is higher than the preceding peak. Antithesis of descending tops.
This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buyshares of stock; also called the offer price.
Used in context of general equities. Usually a seller (buyer) looking to aggressively sell (buy) stock, usually asking for a capital commitment from an investment bank.
Australian Stock Price Riskless Indexed Notes. Zero-coupon four-year bonds repayable at face value plus the percentage increase by which the Australian stock index of all ordinaries (common stocks) rises above a predefined level during the given period.
Methods of financing in which lenders and equity investors look principally to the cash flow from a particular asset or set of assets for a return on, and the return of, their financing.
The task of managing the funds of a financial institution to accomplish the two goals of a financial institution: (1) to earn an adequate return on funds invested and (2) to maintain a comfortable surplus of assets beyond liabilities. Also called surplus management.
A corporate raider (company A) that takes over a target company (company B) in order to sell large assets of company B to repay debt. Company A calculates that the net selling of the assets and paying off the debt, will leave the raider with assets that are worth more than what it paid for company B.
A loose economic and geopolitical affiliation that includes Singapore, Brunei, Malaysia, Thailand, the Philippines, Indonesia, and Vietnam. Future members are likely to include Burma, Laos, and Cambodia.
Used in context of general equities. Paramount terms used to differentiate an offering. Stock is offered at; stock is bid for. In an offering, the trading syntax followed is "Quantity-at-Price"; in a bid, the syntax followed is "Price-for-Quantity."
In context of general equities, at the whole integer price (excluding the fraction) closest to the side of the market (bid/ask) being discussed. At the full.
Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange.
An examination of a company's accounting records and books conducted by
an outside professional in order to determine whether the company is maintaining
records according to generally
accepted accounting principles. See: accountant's
opinion.
Established in 1987 following the amalgamation of the six independent stock exchanges operating in the Australian state capitals. The ASX is the tenth-largest stock exchange
in the world on the basis of domestic capitalization.
Video communication network through which brokerage houses alert institutional investors of their desire to transact block business (a purchase or sale) in a given security. Indications transmit small, medium, and large sizes only, with occasional limits mentioned. Supers are messages with specific size and price included. Both "indications" and "supers" can be only seen by customers (institutional subscribers to Autex). Trade recaps, advertised block trades entered by the dealer/subscribers, are also displayed, but can be seen by both institutions and dealers. See: Expunge, size.
A bond issued by a government agency or a corporation created to manage a revenue-producing public enterprise. The difference between an authority bond and a municipal bond is that margin protections may be incorporated in the authority bond contract as well as in the legislation that enables the authority.
Introduced in 1989, APT is the LIFFE
screen-based trading system that replicates the open outcry method of trading
on screen. APT is used to extend the trading day for the major futures contracts
as well as to provide a daytime trading environment for non-floor trading
products.
A program in which an investor can invest or withdraw funds automatically. A mutual fund, for example, automatically withdraw a pre determined specified amount from the investor's bank account on a regular basis.
The restricting of liabilityholders from collection efforts related to collateral seizure. Automatically imposed when a firm files for bankruptcy under Chapter 11.
Autoquote indicative prices are generated for many of the financial options contracts traded at LIFFE
using standard mathematical models as derived by Black and Scholes and Cox, Ross, Rubinstein. Autoquote calculates prices for all series by processing variables captured in real-time from other systems and trading members each time the underlying price changes. Autoquotes indicate where a series may trade, given the current level of the underlyinginstrument.
A stationary stochastic process where the current value of the time series is related to the past p values, where p is any
integer, is called an AR(p) process. When the current value is related to the previous two
values, it is an AR(2) process. An AR(1) process has an infinite memory.
A nonlinear stochastic process, where the variance is time-varying, and a function of the
past variance. ARCH processes have frequency distributions which have high peaks at the
mean and fat-tails, much like fractal distributions. The Generalized
ARCH (GARCH) model is also widely used. See: Fractal
Distributions.
In context of general equities, stock is available to new customer as trade initiated by another customer is about to be consummated (on the exchange floor). Usually said to an inquiring salesperson. See: Open.
An arithmetic mean return of selected
stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones
Industrial Average, which adds the current prices of the 30 DJIA stocks, and divides the results by a predetermined number, the divisor.
A firm's required payout to bondholders and stockholders expressed as a percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total required cost of capital by the total amount of contributed capital.
A strategy used by investors to reduce the average cost of shares, in which the investor purchases more shares with a fixed amount of capital as the price of the shares decrease. The investor receives more shares per dollar and decreases the average price per share.
Also referred to as the weighted-average life (WAL). The average number of years that each dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal paydowns.
A strategy used by investors to lower the overall cost of shares by buying as many shares with a given amount of capital in an increasing market. Buying $1000 worth of shares at $30, $35, $40, and $45, for instance, will make the average cost of the shares $37.50.
Used in context of general equities, to characterize role of a competing broker/dealer. Trading away from us signifies that stock is bought and/or sold with institutions using other trading firms.