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171 Cards in this Set

  • Front
  • Back
Marketability risk
The risk of having to accept a below-market price for a security in order to sell it quickly because the security does not trade in an active secondary market.
The market trading system in which a group of competing marketmakers (rather than a single person as in the specialist system) seeks to maintain a fair and orderly market.
Markowitz diversification
The portfolio construction technique using security correlations or covariances to minimize portfolio variance for a given level of expected return.
Matched order
Making buy and sell orders in the same security in rapid succession in order to give the impression on active trading in the security.
Mental accounting
The tendency to mentally differentiate between similar economic events or aspects of market activity and track them individually.
Mergent Bond Record
A comprehensive document on virtually all aspects of debt securities. It provides Moody’s bond rating, interest payment dates, sinking funds provisions, call dates, the historical highs and lows, and the bonds yield to maturity.
Mergent’s Handbook of common stock
Similar to S&P Stock Market Encyclopedia but broader, covering about 950 stocks with high investor interest.
Mid-cap stock
A medium-size firm with capitalization between 800 million and 2 billion dollars.
Minimum variance portfolio
For a given security universe, the combination of securities that produce the lowest variance; the left extreme of the efficient frontier.
Modified BAI method
For performance evaluation purposes, a method of approximating the internal rate of return for an investment over some holding period.
Modified duration
A measure of interest rate risk equal to Macaulay duration divided by the quantity one plus the yield to maturity. This measures the percentage change in bond value associated with a one point change in interest rates.
Modified pass-through
A mortgage pass-through security in which the government agency guarantees only the timely payment of interest.
Moody’s manual
A detailed publication with several sets of volumes, one each on industrial firms, municipals and governments, over-the-counter industrials, public utilities, transportation issues, banking and finance, and international firms.
A loan with real estate as collateral.
Mortgage originator
The person or institution arranging for a real estate loan between a borrower and a lender.
Mortgage servicer
The institution processing mortgage payments, crediting them to the borrower’s account, and remitting them to the lender.
Mortgage-backed security
A catchall term that encompasses the various ways in which mortgages are pooled, subdivided, and distributed to investors.
Moving average
A smoothed presentation of underlying historical data. Each data point is the arithmetic average of a portion of the previous data. Generally, when a new data point is added, the oldest one is dropped.
Municipal security
A bond sold by a state or local government. Their interest is exempt from federal tax.
Mutual fund
The common name for an open-end investment company which has no set number of authorized shares.
mutual fund cash position
A measure of the proportion of total mutual fund assets currently held in cash equivalent securities.
Myopic loss aversion
Excessive concern with short-term market activity, including assigning too much importance to routine daily fluctuations.
Naïve diversification
The process of mathematically reducing portfolio variance by random selection of portfolio components without conducting any serious security analysis.
Naïve strategy
A portfolio investment strategy requiring little thinking, usually following some mechanical rule.
NASDAQ national market
The “electronic bulletin board” where bids and offers for non-exchange listed securities are posted.
National Association of Securities Dealers (NASD)
A self-regulatory body that licenses brokers and generally oversees trading practices.
National Association of Securities Dealers Automated Quotations (NASDAQ)
The quoted prices for securities trading in the over-the-counter market.
National exchange
The NYSE or American Stock Exchange.
National market issues
The largest and most established firms in the NASDAQ market.
Negative surprise
A case of actual earnings being below expectations.
Neglected firm effect
A cousin to the small firm effect and the semi-efficient market hypothesis. It is the idea that institutions are sometimes restricted to purchasing large-cap securities, thereby ignoring small-cap firms, with the results that they may be priced less efficiently.
Net asset value
The value of a mutual fund share. The price reported in the newspaper; equals the market value of the fund’s assets minus any outstanding liabilities the fund might have, all divided by the current number of shares in the fund.
Neural network
A trading system in which a forecasting model is trained to find a desired output from past trading data. By repeatedly cycling through the data, the system eventually learns the pattern that produces the desired output.
Nikkei 225
A price-weighted index on the Japanese stock market.
No-load fund
A mutual fund that charges no sales commission.
Nonconforming mortgage
A mortgage that is too large to be eligible for inclusion in a mortgage pool for resale.
Nondetachable warrant
A warrant that cannot be sold separately from its accompanying debt issue.
NYSE composite
An index based on the average of all NYSE listed stock.
NYSE Direct+
A system offering automatic execution of limit orders up to 1099 shares.
Odd lot
A quantity of shares not evenly divisible by 100.
Offer price
Ask price, The lowest price at which anyone will currently sell a particular stock.
Open interest
The quantity of a futures or option contracts in existence at a point of time.
Open outcry
The verbalization of offers to buy and sell in the trading pit of a marketmaker exchange.
Open-end investment company
Mutual fund
Opening transaction
The first trade someone makes in a particular futures or option contract.
Operating cash flow
Operational efficiency
A measure of how well an exchange or marketplace functions in terms of speed of execution and accuracy.
Opportunity cost
What you give up for certain in exchange for a chance of something better.
Optimum trading range
The conjectural stock price range that is neither too high nor too low, resulting in maximum investor appeal (everything else being equal). This idea stems from the behavioral observation that some people consider low price “risky” and high price “too expensive.”
Option overwriting
The creation and sale of stock options in conjunction with a stock portfolio.
Option Clearing Corporation (OCC)
An organization jointly owned by the options exchanges that positions itself between every buyer and seller, acting as a guarantor of all option trades.
A warrant whose exercise price is above the current stock price; also an option with no intrinsic value.
The belief that one is better than average in ability, as in picking stocks or perceiving tendencies.
Over-the-counter Bulletin board
A regulated quotation service providing real-time price information on over-the-counter equity securities.
Over-the-counter derivative
A futures or option contract, or other derivative asset, that is private arrangement between a buyer and a seller, usually with no intervening guarantor like the OCC. These derivatives are not traded on any exchange.
Overhanging issue
A bond that cannot be called.
Par value
The face, or maturity, value of a bond.
Parallel shift
A change in the yield curve in which yields across the entire maturity spectrum change by the same amount.
Participation certificate
A mortgage pass-through security issued by Freddie Mac.
Passive management
A portfolio strategy in which, once established, the portfolio is largely left alone.
Pass-through security
A security whereby an investor can purchase part of a mortgage pool and receive a pro rata share of principal and interest payments as they occur.
Payout ratio
The proportion of corporate earnings paid as dividends; the ratio of a firm’s dividends per share to its earnings per share.
PEG ratio
The price-earnings ratio divided by annual earnings per share growth rate; notably used by GARP investors.
Penny stock
An imprecise category of common stock comprising especially inexpensive, often unusually risky shares.
Periodic payment option
A mutual fund shareholder option in which the account holder requests that shares be automatically redeemed in sufficient quantity to generate a check of a predetermined amount each month, quarter, or other period. One may also request that a certain number of shares be redeemed each period.
Pink sheet issues
The smallest over-the-counter stocks.
An octagonal, sunken trading area on the floor of a marketmaker exchange.
One hundredth of a percent (.01%)
Point-and-figure chart
A technical analysis chart using Xs and 0s, respectively, for significant price advances and declines. The horizontal axis measures irregular intervals of time rather than evenly spaced intervals.
Political risk
The possibility that a foreign government will interfere with a firm’s preferred manner of conducting business; also a measure of a country’s willingness to honor its foreign obligations.
Ponzi scheme
An investment scam in which someone returns part of the investor’s principal claiming it is profit.
Portfolio dedication
Establishing a separate portfolio that will generate cash equal to or greater than some required amount.
Portfolio turnover rate
A measure of the level of trading activity in a mutual fund.
The specific location of the exchange floor where a particular specialist conducts trading in his or her assigned stocks.
Preemptive right
The right of existing shareholders to maintain the same ownership percentage before and after new stock sale.
A bond whose market price is more than the par value is selling at a premium; also the price of a stock option.
Preferred stock
A form of equity interest in a corporation with priority over common stock in the event the firm goes bankrupt and the courts direct the distribution of the remaining firm assets; also called preference stock.
Premium over conversion value
The market price of a convertible bond minus its conversion value.
Premium payback period
The time required for the enhanced income from a convertible bond (relative to the equivalent number of stock shares) to offset the premium over conversion value.
Prepayment risk
The chance of loss due to the early retirement of a loan, especially with mortgage-backed securities.
Present value of growth opportunities (PVGO)
The amount the market is paying for the future growth prospects; the portion of a firm’s stock price that does not come from the current earnings stream.
Price compression
A characteristic of a callable bond in which the call price functions as a ceiling on the market price of the security.
Price-earnings ratio (P/E ratio)
The current stock price divided by the firm’s most recent annual earnings per share.
Price risk
The risk of loss because of an adverse future value of an asset.
Price-to-book ratio
Ratio of stock’s price to its book value per share.
Price value of a basis point
The dollar price change in a bond associated with a single basis point change in the bond’s yield.
Price-weighted index
An index constructed of a single share of each of the index components, regardless of the price of the share or the size of the underlying company.
Primary market
The sale of securities to the public for the first time; the “new securities” market.
Primary trend
In the Dow Theory, this is the long-term direction of the market and is the most important. A primary trend that is up constitutes a bull market; a declining primary trend is a bear market.
Principal reduction
An extra payment on a loan that results in shortened remaining loan life.
Principal-only (PO) security
A stripped mortgage-backed security in which the security holder in entitled to the principal payments on a mortgage pool, including any prepayments, but not to any of the interest.
Pro forma earnings
Net income excluding the effects of write-downs or goodwill amortization.
Property dividend
The pro rata distribution of a physical asset to shareholders of a corporation.
Prospect theory
A theory of the way in which people make decisions in the face of risk and uncertainty.
With a corporation, the document that outlines the terms of a corporation’s intended transactions; with mutual fund, the legal document describing the operation of the fund, its management, and fees accountholders must pay.
Protective put
A descriptive term given to a long stock position combined with a long put option.
Proxy statement
An absentee ballot the shareholder sends to a neutral party who will vote in the shareholder’s absence in accordance with the shareholder’s wishes.
Publicly held
Common stock shares that are routinely traded in a secondary market.
Purchasing power risk
The possibility that the rate of return on an investment will be insufficient to offset the rise in the cost of living.
Put option
An option giving its owner the right to sell a specified quantity of the underlying asset at a set price within a certain time period.
Puttable bond
A bond with an added feature enabling the bondholder to return the bond to the issuer at par on one or more dates prior to maturity.
Random walk
The thesis that news arrives randomly and that stock prices quickly react to the news, whatever it is.
Real asset
Unlike a financial asset, there is no corresponding liability associated with a real asset, although one might be created to finance it.
Realized compound yield
The effective annual interest rate with bonds; a function of the stated annual coupon rate and the number of payment periods per year.
Realized return
An actual return calculated from known performance.
The process of periodically adjusting the portfolio so that certain original conditions of the portfolio are maintained.
Red herring
The preliminary prospectus, so-called because of its traditional red lettering around the front cover.
Refunding protection
A feature of a debt issue precluding the issuer from calling the bond and replacing it with a lower-cost debt issue. This feature does not preclude paying the debt off provided it is not refinanced.
Reference dependence
The effect of personal point of view in decision making.
Regional exchange
A physical stock exchange other than the NYSE or the AMEX.
Registered bond
Bonds showing the owner’s name. The issuer sends periodic interest payments via a check to the owner.
Regression to the mean
The concept that given a series of random, independent data observations, as unusual occurrence tends to be followed by a more ordinary event.
Regular dividend
A cash dividend a corporation intends to pay on a routine basis (usually quarterly), often in accordance with a previously announced policy.
Regulated investment company
An investment company choosing to comply with the Investment Company Act of 1940, thereby escaping direct taxation on its capital gains and income.
Regulation FD
Regulation Fair Disclosure, an August 2000 ruling by the Securities and Exchange Commission to prevent companies from giving information to securities analysts, mutual funds, or institutional investors but not the general public.
Regulation T
A Federal Reserve Board regulation establishing minimum equity requirements and maximum borrowing levels for brokerage accounts.
Reinvestment rate risk
The chance of loss due to the risk that the interest received on a debt security cannot be reinvested to earn as much as the bond’s original yield to maturity.
Relative ratio
A method of comparing one statistic to some benchmark statistic. The statistic is divided by the benchmark to show the statistic in “relative” terms.
Relative-strength ratio
A method of comparing one ratio to some benchmark ratio, especially in a technical analysis context.
Representativeness heuristic
The application of one characteristic of a company to other aspects of that firm, especially with regard to stereotypes.
Resistance level
A chart annotation showing the technical analyst’s subjective assessment of an upper bound on stock prices representing a barrier to further price appreciation.
Retention ratio
Equal to one minus the payout ratio; also called the plowback ratio.
Return of capital
A cash distribution that is not profit or income, but rather a return of a portion of the original investment principal.
Return relative
One plus the percentage return. The return relative is a mathematical convenience used to eliminate negative values in determining compound growth rate.
Revenue bond
A municipal bond with user fees being the principal source of debt repayment.
Reverse mortgage
A real estate loan in which the homeowner gives up their equity in the property in exchange for an annuity.
Reverse split
A stock split in which the number of existing shares is reduced.
Rights offering
In conjunction with the sale of additional shares in an existing company and the shareholders’ preemptive right, the corporation distributes to existing shareholders securities (called rights) giving them the first opportunity to buy the newly issued shares.
Risk averse
The common investor characteristic of only taking a risk when there is a reasonable expectation of being rewarded for taking it.
Riskless rate
The rate of return that can be earned without bearing any risk.
Rogue broker
An unscrupulous broker who commits a significant breach of sales practice rules or has a history of repeated sales practice violations.
Rolling load
The characteristic of a load waived class A share, which has neither a front-end nor back-end load, but is subject to an annual wrap fee about 1%.
Round lot
Quantities of shares that are whole multiples of 100.
Runs test
A nonparametric statistical technique that measures the likelihood that a series of two variables is a random occurrence.
Russell 3000 Index
A mix of both large- and small capitalization stocks, and to many portfolio managers a better representative of the broad market.
S&P 500 Composite
A value-weighted index containing 500 NYSE-traded securities; probably the most widely used Standard and Poor’s index.
S&P 500 Guide
Contains descriptions of each stock in the S&P market index.
S&P Corporation Records
A comprehensive summary of the firm’s capital structure, the terms of its debt agreements, a listing of subsidiaries, and recent new reports about the firm; includes a daily, weekly, and biweekly cumulative index.
S&P Earnings Forecaster
A compilation of the earnings per share estimates from about 60 investment management firms on approximately 1,600 firms.
S&P Mid Cap 400
An index composed of 400 mid-capitalization securities.
S&P Outlook
A weekly loose-leaf publication providing summary opinions and statistics on a variety of stock and bond market indicators as well as individual issues. Weekly sections include rising and falling stars, rapid growth stocks, and stocks with high dividend growth.
S&P Small Cap 600
An index composed of 600 small cap stocks.
S&P Stock Guide
A small monthly publication with summary statistics on several thousand common stocks, preferred stocks, warrants, and mutual funds.
S&P Super Composite 1500
An index that is composite of the S&P 500, S&P Mid Cap 400, and S&P Small Cap 600.
Safety ranking
The Value Line assessment of the relative riskiness of a particular common stock investment.
Sales charge
A fee paid as a condition of ownership of mutual fund shares; a brokerage commission.
Putting money away with very little, if any, risk to the saved dollar.
Schedule 14A
A firm’s annual meeting proxy statement for shareholders.
The term used to describe the process of sorting through the list of potential investments in order to reduce it a manageable number for closer examination.
A membership in a securities or commodities exchange.
Secondary market
The trading of previously issued securities among security holders; the “used securities” market.
Secondary trend
In the Dow Theory, this refers to a temporary reversal in the primary trend, one that does not persist long enough to become a primary trend.
Securities Act of 1933
An act of Congress designed to protect investors by providing for the regulation of the initial sale of virtually all securities; also called Truth in Securities law.
Securities and Exchange Commission (SEC)
Established by Congress in 1934 with the primary purpose of ensuring that investors have adequate information to make an informed investment decision.
Securities Exchange Act of 1934
An act of Congress dealing with the secondary market and focusing on accurate disclosure surrounding listed securities.
Securities Investor Protection Corporation (SIPC)
Established by the Securities Investor Protection Act of 1970 to protect investors from loss due to brokerage firm failure, natural disaster, or theft.
The process of converting an asset or collection of assets into a more marketable form.
A legal document that shows an ownership interest.
Security market line
A line extending from the riskless rate through the point corresponding to the return associated with a beta of 1.0.
Security universe
The collection of eligible investments.
Semi-efficient market hypothesis
The proposition that some stocks are priced more efficiently than others.
Semi-strong form efficiency
The form of the efficient market hypothesis proposing that security prices fully reflect all relevant publicly available information.
Serial bond
A bond issue with a series of maturity dates for specific portions of the principal; equivalent to a portfolio of staggered term bonds.
The activities surrounding the transfer of ownership of securities.
Shared appreciation mortgage
A real estate loan in which, in exchange for a reduced interest rate, there is some arrangement for sharing in any increase in property value between the borrower and the lender.
Shareholder’s required rate of return
The variable k in the dividend discount model. This is the interest rate that cause the anticipated dividend stream from a stock to equal the current market price of the stock.
Sharpe measure
A security’s average excess return per unit of total risk.
Short interest
The quantity of shares in a particular security that is sold short in a particular point in time.
Short interest ratio
The number of days it would take to cover the short interest if trading continued at the average daily trading volume for the previous month.
Short sale
Borrowing securities, selling them to someone else, eventually purchasing similar shares from someone else, and delivering these substitute shares to the original lender; the short seller anticipates a price decline.
Short sale against the box
In such a trade, the investor sell short shares that are simultaneously owned. The box refers to the safe deposit box where the share certificate might be held. A short sale against the box is typically done near year end to move a kapital gain into the following tax year.