Term
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Definition
| assists the purchase and sale of securities by bringing together buyers and sellers |
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Term
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Definition
| facilitates primary and secondary market trading by buying and selling securities from his or her own account |
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Term
| Externally or informationally efficient |
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Definition
| when a market’s prices move quickly and in an unbiased manner to new information |
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Term
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Definition
| that gather funds from savers and channel them to borrowers, such as banks, credit unions, and investment banks |
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Term
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Definition
| when a market’s mechanism allows trading to occur at minimum cost |
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Term
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Definition
| the current commitment of resources for a period of time in the expectation of receiving future resources that will compensate the investor for the time, the resources are committed, the expected rate of inflation, and the uncertainty of future payments |
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Term
| Nominal risk-free interest rate |
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Definition
| the basic interest rate that incorporates the effects of expected inflation. |
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Term
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Definition
| the overall collections of assets owned by an investor |
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Term
| Pure or real risk free interest rate- |
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Definition
| the basic interest rate with no accommodation for inflation or uncertainty. |
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Term
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Definition
| the uncertainty that an investment will earn its expected rate of return. |
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Term
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Definition
| the extra return above the nominal risk-free rate that investors require to commit funds in a risky investment |
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Term
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Definition
| the name for market where investors trade amongst themselves |
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Term
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Definition
| the principle that a dollar today is worth more to us than that same dollar in the future |
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Term
| Arithmetic mean return (Ra) |
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Definition
| measure of mean return equal to the sum of annual holding period returns divided by the number of yrs |
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Term
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Definition
| uncertainty due to the nature of the firm’s business that affects the variability of sales and earnings |
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Term
| Capital market line (CML) |
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Definition
| the line that reflects the combination of risk and return of different investments |
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Term
| Coefficient of variation (CV) |
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Definition
| a measure of relative variability that indicates risk per unit of return. In general, it is equal to the st dev/ mean value |
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Term
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Definition
| uncertainty due the method by which the firm finances its assets |
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Term
| Geometric mean return (Rg) |
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Definition
| the nth root of the product of the annual holding period returns for nth years minus 1 |
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Term
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Definition
| the amount of time an investment is owned |
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Term
| Holding period return (HPR) |
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Definition
| the total return from an investment for a given period of time, stated as a percentage |
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Term
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Definition
| uncertainty due to the ability to buy or sell and asset in the secondary market. |
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Term
| Mean or average rate of return |
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Definition
| the average of an investment’s return over a given period of time. |
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Term
| Real risk free interest rate |
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Definition
| the basic interest rate with no accommodation for inflation or uncertainty; the pure time value of money |
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Term
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Definition
| the return that compensates investors for their time, the expected rate of inflation, and uncertainty of the return. |
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Term
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Definition
| 1+(holding period return) |
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Term
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Definition
| the uncertainty that an investment will earn its expected rate of return. |
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Term
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Definition
| the increase over the nominal risk free rate that investors demand as compensation for an investment’s uncertainty |
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Term
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Definition
| a measure of variability equal to the sqrt of the variance. |
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Term
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Definition
| the portion of an individual asset’s total variance that is attributable to the variability of the total market portfolio. |
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Term
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Definition
| asset-specific risk that deal with the characteristics of a type of asset or security issuer rather than broad economic factors. |
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Term
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Definition
| a measure of variability equal to the sum of the squares of a return’s deviation from the mean, divided by n-1. |
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Term
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Definition
| the portion of an individual asset’s total variance that is attributable to the variability of the total market portfolio. |
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Term
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Definition
| asset-specific risk that deal with the characteristics of a type of asset or security issuer rather than broad economic factors. |
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Term
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Definition
| a measure of variability equal to the sum of the squares of a return’s deviation from the mean, divided by n-1. |
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Term
| American depository Receipts (ADR’s) |
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Definition
| certificates of ownership issued by a US bank that represents indirect ownership of a certain number of a specific foreign firms. Shares are held on deposit in a bank in the firms home country. |
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Term
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Definition
| an option to buy a firms’ common stock within a certain period at a specified price called a strike price. |
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Term
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Definition
| specify when and how a firm can issue a call for bonds outstanding before their maturity. |
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Term
| Capital market instrument |
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Definition
a fixed income investment that trades in the secondary market
Certificate of automobiles receivables CAR)-an asset back security backed by pools of loans to an individual for financing an car purchase. |
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Term
| Certificate of deposit (CD) |
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Definition
| an instrument issued by banks and S&Ls that requires minimum deposits for specified terms and it pays higher rates of returns than a savings account. |
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Term
| Collateralized mortgage obligations (CMO) |
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Definition
| a debt security, based on a pool of mortgages loans that provides a relatively stable stream of payments for a relatively predictable term. |
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Term
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Definition
| a mortgage bond wherein the assets backing the bond are financial assets like stocks and bonds. |
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Term
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Definition
| an equity investment that represent ownership of a firm with full participation in its success or failure. The firm’s directors must improve dividend payments |
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Term
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Definition
| a bond with the added feature that the bondholder had the option to turn the bond back to the firm in exchange for a specified number of common shares of the firm. |
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Term
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Definition
| bond that promise payments of interest and principal but pledge no specific assets. Holders have first claim on the issuer’s income and unpledged assets. |
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Term
| Equipment trust certificates |
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Definition
| mortgage bonds that are secured by specific pieces of transportation equipment like boxcars and planes. |
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Term
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Definition
| an international bond denominated in a currency not native to the country in which it was issued. |
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Term
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Definition
uncertainty due to fluctuating exchange rates when investing in foreign securities.
Fixed income investments- loans from investors to firms or governments with contractually mandated payment schedules. |
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Term
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Definition
| an agreement that provides for the future exchange of a particular asset at a specified delivery date in exchange for a specified payment on the date of delivery. |
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Term
| General obligation bond (GO) |
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Definition
| a municipal bond backed by the full taxing power of municipality. |
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Term
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Definition
| debentures that stipulate interest payments id the issuer earns the income to make the payments by specified dates |
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Term
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Definition
| the legal agreement that lists the obligations of the issuer of a bond to the bondholder including payment schedules call provisions and sinking funds. |
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Term
| International domestic bond |
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Definition
| a bond issued by a foreign firm denominated in the firm’s native currency and sold within the country. |
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Term
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Definition
| a firm that sells shares of the company and uses the proceeds to buy stock, bonds, or other financial instruments. |
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Term
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Definition
| an investment company that holds portfolios of high quality, short term securities like tbills. High liquidity and superior returns make this a good alternative to bank saving accounts. |
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Term
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Definition
| bonds that pledge specific assets such as building equipment. The proceeds from the sale of these assets are used to pay off bondholders in case of bankruptcy. |
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Term
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Definition
| the right to buy or sell a firm’s common stock at a specified price for a stated period of time. |
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Term
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Definition
| an equity investment that stipulates a dividend payment either as a coupon or stated dollar amount. The firm’s board of directors may with hold payments. |
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Term
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Definition
| the option to sell a firm’s common stock within a certain period at a specified price. |
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Term
| Real estate investment trust (REIT) |
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Definition
| an investment fund that holds portfolios of real estate investment. |
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Term
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Definition
| a municipal bond backed by revenue generated by specific municipal projects. |
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Term
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Definition
| a money market security wherein an individual leans money to a bank or credit union through a liquid, low risk, low interest account. |
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Term
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Definition
| the most senior bonds in a firms capital structure. They have the first claim on specific assets of the firm in case of bankruptcy. |
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Term
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Definition
| debentures that, that in case of default entitle holders to claims on the issuer’s assets only after the claims of holders of senior debentures and mortgage bonds satisfied. |
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Term
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Definition
| a bond sold in the US and dominated in US dollars but issued in a foreign firm or government. |
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Term
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Definition
| a bond sold at a discount from par value that promise no interest payments during the life of the bond, only the payment of the parvalue at maturity. |
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Term
| Closed end investment company |
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Definition
| an investment company that issues only a limited number of shares, which it does not redeem (buy back). Instead close-end shares are traded in securities markets at prices determined by supply and demand. |
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Term
| Investment management company |
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Definition
| a company spate from the investment company that manages the portfolio and performs administrative functions. |
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Term
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Definition
| an amount charged to purchase shares in most mutual funds that are sold by brokers or other members of a sales force. Typical charges range from 4-8.5% of the initial investment. The charge is added to the NAV per share to determine the offering price |
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Term
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Definition
| a mutual fund that impose moderate front-end sales charge when the investor buys the fund…about 3-4% |
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Term
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Definition
| an investment company that pools money from shareholders and invests it in a variety of securities, including stocks, bonds and money market securities. A mutual fund ordinarily stands read to buy back its shares at their current NAV, which depends on the market value of the fund’s portfolio of securities at the time. Mutual funds generally offer new shares to investors. |
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Term
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Definition
| the market value of an investment company’s assets after deducting liabilities, divided by the number of shares outstanding. |
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Term
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Definition
| a mutual fund that sells its shares at NAV with no sales charge. |
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Term
| Open-end investment company |
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Definition
| the more formal name for a mutual fund, which derives from the fact that it continuously offers new shares to investors and redeems them on demand. |
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Term
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Definition
| a booklet that describes a mutual fund and offers its shares for sale. It contains information required by the SEC on such subjects as the fund’s investment objectives, policies, services, investment restrictions, officers and directors, procedures for buying or redeeming shares, charges, and financial statements. |
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Term
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Definition
| a contract under which an annuity is purchased with a fixed amount of money that is converted into a varying number of accumulations units. At retirement, the annuitant is paid a fixed number of monthly units, which are converted into varying amounts of money. The value of both accumulation and annuity units varies with the performance of a portfolio of equity securities |
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Term
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Definition
| phase in investment life-cycle, early-to-middle working years attempt to accumulate assets to satisfy short-term needs and longer term goals. |
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Term
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Definition
| Discount rate used to find PV of a defined benefit pension plan’s future obligations and thus determine the size of the firm’s annual contribution to the plan. |
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Term
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Definition
| Process of deciding how to distribute an investor’s wealth among different asset classes for investment purposes |
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Term
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Definition
| collection of securities that have similar characteristics, attributes, and risk-return relationships |
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Term
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Definition
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Term
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Definition
| Comparison standard for risk and assets. Included in the policy statement, used to evaluate investment performance of a portfolio manager |
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Term
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Definition
| Return objective where investor seeks to increase portfolio value, through capital gains, over time to meet a future need – goal of an investor willing to take on above-avg risk to meet a goal |
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Term
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Definition
| Return objective where investor seeks to minimize risk of loss – goal of risk-averse investor |
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Term
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Definition
| Phase of investment life cycle, past midpoint of career and have earnings exceeding expenses, invest these earnings for future retirement or estate-planning needs |
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Term
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Definition
| investor seeks to generate income rather than capital gains, supplement earnings with income to meet living expenses |
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Term
| Defined benefit pension plan |
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Definition
| pension plan that promises to pay retirees a specific income stream that is based on years of service, salary or both |
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Term
| Defined contribution pension plan |
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Definition
| size of the employee’s and employer’s contribution is known but the benefits upon retirement depend on both contributions and returns earned on them |
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Term
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Definition
| Person who supervises or oversees the investment portfolio of a third party, and makes investment decisions in accordance with the owner’s wishes |
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Term
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Definition
| Phase in investment life-cycle, person uses excess assets to financially assist relatives or friends, establish trusts, or construct trusts to minimize estate taxes |
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Term
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Definition
| describes an asset that can be quickly converted to cash at a price close to fair market value |
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Term
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Definition
| portion of each additional dollar of income that is pd as a tax |
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Term
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Definition
| investor’s goals, in terms of risk and return, and included in policy statement |
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Term
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Definition
| defined benefit pension plan in which the PV of pension liabilities is less than the plan’s assets |
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Term
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Definition
capital gains that result when an appreciated asset has been sold, and are taxable
Spending phase- Phase in investment life cycle where person’s earnings years end as they retire. Pay for expenses with income from Social Security and prior investments and invest to protect against inflation
Underfunded plan- Defined benefit pension plan in which PV of fund’s liabilities to employees exceeds value of fund’s assets |
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Term
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Definition
| capital gains that reflect the price appreciation of currently held assets, taxes can be deferred indefinitely |
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Term
| Alternative trading system(ats) |
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Definition
| A nontraditional, computerized trading system that competes with or supplements dealer markets and traditional stock exchanges. While they facilitate trading in shares, they do not provide listing services. |
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Term
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Definition
| A market in which trading for individual stocks only takes place at specified times. All the bids and asks available at the time are combined and the market administrators specify a single price that will possibly clear the market at that time. |
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Term
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Definition
| An employee of a member firm who buys or sells for the customers of the firm. |
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Term
| Computer Assisted Execution system (CAES) |
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Definition
| A service created by Nasdaq that automates order routing and execution for securities listed on domestic stock exchanges and involved in the Intermarket Trading system (ITS) |
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Term
| Consolidated Quotation System(CQS) |
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Definition
| An electronic quotation service for issues listed on the NYSE, the AMEX, or regional exchanges and traded on the Nasdaq InterMarket |
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Term
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Definition
| A market where stocks are priced and traded continuously either by an auction process or by dealers during the time the market is open. |
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Term
| Electronic communication Network( ECN) |
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Definition
| A computerized trading system that matches buy and sell orders, usually for retail and small institutional trading. ECNs act for customers as a broker-they do not buy or sell from their own account |
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Term
| Electronic Crossing System (ECS) |
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Definition
| An electronic trading system that matches large buy and sell orders. |
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Term
| External (or informational) efficiency |
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Definition
| A market where prices adjust rapidly to the infusion of new information. AS a result current security prices fully reflect all available. |
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Term
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Definition
| An independent member of an exchange who acts as a broker for other members. |
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Term
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Definition
| Direct trading of exchange securities between owners (usually institutions) without any broker intermediation, often via an ATS. |
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Term
| Initial Public offering (IPO) |
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Definition
| A new issue by a firm that has no existing public market. |
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Term
| Intermarket Trading System (ITS) |
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Definition
| A computerized system that connects competing exchanges and dealers who trade stocks listed on an exchange. Itrs purpose is to help customers find the best market for these stocks at a point tin time. |
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Term
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Definition
| An order that lasts for a specified time to buy or sell a security when and if it trades at a specified price. |
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Term
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Definition
| The ability to buy or sell an asset quickly and at a price that is not substantially different from the prices prior transactions. |
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Term
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Definition
| The subsequient downside margin required after the purchase if the stock price declines. |
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Term
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Definition
| The percent of cash a buyer pays for a security borrowing the balance from the broker. This introduces leverage, which increases the risk of the transaction. |
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Term
| MRegistered competitive market amkersargin call |
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Definition
| If the value of your equity falls below the maintenance margin(currently 25 percent) you will receive a margin call that requires you to provide morer equity to bring the equity up to the 25 percent requirement. |
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Term
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Definition
| The means through which buyers and sellers are brought together to aid in the transfer of goods and/or services. |
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Term
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Definition
| An order to buy or sell a security immediately at the best price available. |
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Term
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Definition
| A trading system that includes Nasdaq market makers and ECNs that quote and trade stocks listed on the NYSE and the AMEX. It involves dealers from the Nasdaq market and the Intermarket Trading System(ITS). In many ways, this has become what had been labeled the third market. |
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Term
| National Association of Securities Dealers Automated Quotation (Nasdaq) system |
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Definition
| An electronic system for providing bid-ask quotes for securities traded on nasdaq |
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Term
| OTC Electronic Bulletin Board (OTCBB) |
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Definition
| A regulatied quotation service that displays real-time quotes, last-sale prices, and volume info for a specified set of over the counter (OTC) securities that are not traded on the formal nasdaq market. |
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Term
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Definition
| A feature of a liquid market in which prices change little from one transaction to the next due to the depth of the market |
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Term
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Definition
| The market in which newly issued securities are sold by their issuers, who receive the proceeds. |
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Term
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Definition
| A new issue sold directly to a small group of investors, usually institutions. |
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Term
| Registered competitive market makers (RCMM) |
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Definition
| fMembers of an exchange who are allowed to use their memberships to buy or sell for their own account within the specific trading obligations set down by the exchange. Because they are on the floor, they have a better feel for the market and low commmmissions, but they provide liquidity to the market. |
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Term
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Definition
| new shares offered by firms that already have stock outstanding. |
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Term
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Definition
| The market in which outstanding securities are bought and sold by owners other than issuers. |
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Term
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Definition
| An order-routing and trade-execution system for institutional investors (brokers and dealers) that allows communication through the nasdaq system rather than by phone. |
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Term
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Definition
| The sale of borrowed stock with the intention of repurchasing it later at a lower price and earning the defference. |
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Term
| Small order Execution system (SOES) |
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Definition
| A quotation and execution system for retail (nonprofessional) investors who place orders with brokers who must honor their prevailing bid-ask for automatic execution up to 1000 shares |
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Term
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Definition
| Trading of listed securities on nasdaq |
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Term
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Definition
| The cost of executing a trade. Low costs characterize an internally efficient market |
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Term
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Definition
| A negotiable us govt security with a maturity of less than one year tha t pays no periodic interest buy yields the difference between its par value and its discounted purchase price. |
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Term
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Definition
| A US govt security with a maturity of more than ten years that pays interest periodically. |
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Term
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Definition
| A US govt security with maturities of one to ten years that pays interest periodically |
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Term
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Definition
| An index calculated as an arithmetic mean of the current prices of the sampled securities |
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Term
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Definition
| An index created as a statistical measure of the performance of an entire market or segment of a market based on a sample of securities from the market of segment of a market. |
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Term
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Definition
| An index affected equally by the performance of each security in the sample regardless of price or market value. Also referred to as an equal- weighted index |
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Term
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Definition
| An index calculated as the taotal market value of the securities in the sample. Market value is equal to the number of shares or bonds outstanding times the market price of the security. |
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Term
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Definition
| A standardized measure of the relationship between two series that ranges from -1 to 1 |
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Term
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Definition
| A measure of the degree to which two variables, such as rates of return for investment assets, move together over time relative to their individual mean returns. |
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Term
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Definition
| The curve that defines the set of portfolios with the max rate of return for every given level of risk or the min. risk for a given rate of return. |
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Term
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Definition
| The efficien portfolio with the highest utility for a given investor, found by the point of tangency between the efficient frontier and the investor’s highest utility curve. |
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Term
| Arbitrage pricing theory (APT) |
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Definition
| A theory concerned with deriving the expected (required) rates of return on risky assets based on the asset’s systematic relationship to several risk factors. This multifactor model is in contrast to the single factor CAPM |
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Term
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Definition
| A standardized measure of systematic risk based on an asset’s covariance with the market portfolio |
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Term
| Capital asset pricing model (CAPM) |
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Definition
| A theory concerned with deriving the expected(required) rates of return on risky assets based on the assets’ systematic risk levels. |
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Term
| Capital Market Line (CML) |
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Definition
| the line from the intercept point that represents the risk-free rate tangent to the original efficient frontier; it becomes the new eff. Frontier |
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Term
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Definition
| the regression line of best fit through a scatterplot of rates of return for the individual risky asset and for the market portfolio of risky assets over some time period. |
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Term
| Completely diversified portfolio |
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Definition
| A portfolio in which all unsystematic risk has been eliminated by diversification. |
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Term
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Definition
| The rate of return an investor anticipates earning from a specific investment over a particular future holding period. |
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Term
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Definition
| The portfolio that includes all risky assets with relative weighs equal to their proportional market values. |
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Term
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Definition
| the amount of return above the risk-free rate that investors expect from the market in general as compensation for systematic risk. |
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Term
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Definition
| A risk-return framework that considers multiple sources of both macroecon and microecon risk in deriving the expected (required) rates of return for a risky-asset portfolio |
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Term
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Definition
| An asset with uncertain future returns |
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Term
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Definition
| the proposition that the investment decision, which involves investing tn the market portfolio on the capital market line, is separate from the financing decision, which targets a specific point on the CML based on the investor’s risk preference. |
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Term
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Definition
| The variability of returns that is due to macroecon factors that affect all risky assets. Because it affects all risky assets; it cannot be eliminated by diversification. |
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Term
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Definition
| Risk that is unique to an asset, derived from its particul characteristics (i.e. from microecon factors). It can be eliminated in a diversified portfolio. |
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Term
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Definition
| the amount by which a security’s return differs from the market’s expected rate of return based on the market’s rate of return and the security’s relationship with the market. |
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Term
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Definition
| security price relationships that appear to contradict a well regarded hypothesis; in this case the efficient market hypothesis. |
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Term
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Definition
| a test of the weak-form efficient market hypothesis that compares security prices changes over time to check for predictable correlations. |
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Term
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Definition
| a branch of financial economics that considers how psychological traits affect how individuals or groups act as investors. |
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Term
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Definition
| a company’s announcement of earnings that differs from the analysts’ expectations. |
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Term
| Efficient capital markets |
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Definition
| a market in which security prices rapidly reflect all information about securities. |
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Term
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Definition
| the return that analysts’ calculations suggest a security should provide, based on the market’s rate of return during the period and the security’s relationship to the market. |
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Term
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Definition
| a trading rule that recommends security transactions when price changes exceed a previously determined percentage. |
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Term
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Definition
| investing with the awareness of dual effects of fundamental value and investor sediment. |
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Term
| Informationally efficient market |
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Definition
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Term
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Definition
| a test of the weak form EMH that checks for trends that persist longer in terms of positive or negative price changes than one would expect for a random series. |
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Term
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Definition
| the belief that security prices fully reflect all publicly available information, including information from security transactions and company, economic, and political news. |
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Term
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Definition
| the belied that security prices fully reflect all the information from both public and private news. |
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Term
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Definition
| a formula for deciding on current transactions based on historical data. |
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Term
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Definition
| the belief that security prices fully reflect all security market information. |
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