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26 Cards in this Set
- Front
- Back
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Holding- period return |
Rate of return over a given investment period.
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Arithmetic average
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The sum of returns in each period divided by the number of periods.
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Geometric average
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The single per-period return that gives the same cumulative performance as the sequence of actual returns.
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Dollar-weighted average return
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The internal rate of return on a investment.
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anachronism
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something or someone misplaced in time; a person or a thing that is chronologically out of place
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Probability distribution
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List of possible outcomes with associated probabilities.
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Expected return
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The mean value of the distribution of HPR.
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Variance
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The expected value of the squared deviation from the mean.
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Standard deviation
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The square root of the variance.
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Value of risk (VaR)
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Measure of downside risk. Loss that will be suffered given an extreme, adverse, price change.
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Kurtosis
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Measure of the fatness of the tails of a probability distribution. Indicates likelihood of extreme outcomes.
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Skew
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Measure of the asymmetry of a probability distribution.
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Risk-free rate
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The rate of return that can be earned with certainty.
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Risk premium
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An expected return in excess of that on risk-free securities.
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Excess return
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Rate of return in excess of the risk-free rate.
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Risk aversion
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Reluctance to accept risk.
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Sharpe (or reward-volatility) measure
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Ratio of portfolio risk premium to standard deviation.
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Mean-variance analysis
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Ranking portfolios by their Sharpe measures.
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Inflation rate
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The rate at which prices are rising, measured as the rate of increase of the CPI.
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Nominal interest rate
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The interest rate in terms of nominal (not adjusted for purchasing power) dollars.
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Real interest rate
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The excess of the interest rate over the inflation rate. The growth rate of purchasing power derived from an investment.
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Asset allocation
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Portfolio choice among broad investment classes.
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Complete portfolio
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The entire portfolio including risky and risk-free assets.
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Capital allocation line
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Plot of risk-return combinations available by varying portfolio allocation between a risk-free asset and a risky portfolio.
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Passive strategy
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Investment policy that avoids security analysis.
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Capital market line
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The capital allocation line using the marketing index portfolio as the risky asset.
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