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Glossary of Investment and Financial Terms

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10-K.  The annual financial statement required by the SEC to be filed by companies with publicly-traded securities.

10-Q.  Quarterly filing of financial information with the SEC that goes along with the 10-K.

12b1 Expenses.  Expenses of a mutual fund for sales and promotion by brokers who sell their fund shares.

13-D.  Form that must be filed with the SEC when one purchases 5% or more of a security issue.  Updated filings are, thereafter, required, as higher and higher percentages are purchased.  One of the important pieces of information that must be disclosed in such filings is the filer’s intentions, e.g., for investment purposes, only, or with the intention to attempt a total corporate takeover.   

8-K.  SEC filing that a company must make to disclose significant corporate events.

401k.  1978 Section added to the tax codes to allow defined benefit plans with employee and employer tax deductible contributions.



AAA.  The highest rating for bonds under the Standard and Poor's rating system; Aaa in the Moody’s rating system.. 

AD (Advance/Decline).  A measure from technical stock analysis, which is an abbreviation for advance-decline.  Technical analysts look at figures, like the number or volume of advancing issues, those whose prices went up on the day, minus the number or volume of declining issues.

ADR (ADS).  American depository receipts or shares are shares of foreign companies traded on U.S. exchanges.

Absolute Return (Funds).  A term used by institutional investors for hedge funds.

Accredited Investor.

After-Hours Trading.  Trading on ECN’s after the ordinary exchanges are closed.  Such trading is conducted for several hour, each trading day, before and after the exchanges are open for regular business.

AIMR.  Association for Investment Management and Research, formed in 1990 from the merger of the Financial Analysts’ Federation and the Institute of Chartered Financial Analysts.

Alpha (a).  A statistic from the security characteristics line analysis.  Alpha is the intercept of the return axis when the market return is zero.  It is, therefore, not part of systematic risk.  For example, if a stock has a positive alpha of 5%, that means that its expected return will be 5% per year, even when the return on the market is zero. 

Second definition: Alpha is a risk-adjustment coefficient in the certainty equivalent theory.

ALM.  Asset-Liability Management of a portfolio of assets and liabilities, like a bank or an insurance company might have.  Immunization is one technique employed in this type of financial-investment management.

AMEX.  American Stock Exchange, now owned by NASDAQ.

Amortization.  To liquidate an obligation on an installment basis over time.  In that regard, an installment loan amortizes the principal amount of the loan in periodic payments over the life of the loan, as opposed to a lump-sum payment at maturity.


Annual Report.  The annual report of financials and business discussion sent by a company to its shareholders.

Annuity.  A security that pays a specified annual payment for a specified number of years.  There are fixed annuities, variable annuities, and SPDA, single premium deferred annuities. 

Arbitrage.  A process of trading in two somehow equivalent investment assets, long in one and short in the other, so as to make a riskless spread between the two.

Archipelago.  An electronic securities market, an ECN (Electronic Communications Network) on which securities are trade by posting to an electronic bulletin board.

ARMS Index.  The trading index, sometimes TRIN, named for its inventor Richard Arms is equal to the AD issues ratio divided by the AD volume ratio

Assignment.  In options, when someone exercises an option, there is an assignment on the other side.  Thus, if you are short a put option on XYZ and the person who bought the put exercises it, you will be assigned, your option will be closed out, and your account will receive the put shares.

Ask (Price).  The price at which someone is offering an investment asset for sale.  Also, called the offer price. 

Average Age of Conversion.



Back Office.  The behind-the-scenes part of Wall Street that takes care of all of the accounting details of securities trades, dividends, stock splits, etc. 

Balance Sheet.  The segment of company financial statements that delineates the companies’ assets, liabilities, debt, and equity ownership accounts.

Bankruptcy.  Comes in two basic forms.  Under chapter 11 of the bankruptcy codes, a company enters reorganization, attempts to restructure its capital structure, seeks concessions from its debtors, and can reemerge as a going concern, again.  In chapter 7 bankruptcy, liquidation, the company’s assets are sold, its creditors are paid off with the proceeds, and the corporation ceases to exist.. 

Basis Point.  The basic unit of quotes for bonds, a basis point is equal to 1/100th of 1 percent.

Basket (Trading).  The practice of trading a whole basket of different stocks by executing simultaneous trades through electronic order execution systems and, in addition, executing a contra trade in stock market futures.

BD (Broker Dealer).   Those allowed to act as brokers and dealer of securities, through registration with the SEC, the NASD, or an exchange.  Also, refers to the SEC form that must be filed to register with the SEC as a BD.

BEA. Bureau of economic analysis: see Commerce Department’s website.

Bear Hug.  A hostile takeover offer whose terms make it difficult to reject.

Bear Market.  A market in which the major intermediate-to-longer term trend is downward.

Bearer Bond.  While most securities are registered to a specific person and, therefore, cannot be bought and sold without specific transfer of title from one person to another, bearer bonds can be redeemed by the bearer.  They are not titled to any one person, and, in that regard, are an equivalent of cash.

Behavioral Finance.   The school of finance that looks into peoples' actual behaviors in risky or investment situations instead of assuming that they are the rational beings that are assumed to be the players in traditional finance. 

Benchmark.  Any sort of referencing index or number, against which others can be judged.  For example, a particular stock index, for judging results of fund managers, or LIBOR for setting interest rates on other loans. 

Benchmark hugging.  The phenomenon of, for example, fund managers to weight funds towards the same basic weights of a stock index and securities analysts to come up with earnings projections that are in-line with those of other security analysts. 

Beta.  The measure of systematic risk in the CAPM.  It is equal to the covariance of an investment asset’s excess return, above the riskless rate, with the market’s excess return divided by the variance of the market’s return.

Bid (Price).  The price at which some one has placed an order to buy an investment asset.

Black Box.  Refers to analytical and selection criteria of fund managers that are hidden from view and kept secret from clients and competitors. 

Black-Scholes Options Pricing Model.  An archetypical financial model of options pricing, based on hedging and using the heat equation from mathematical physics.

Block.  Blocks, or large blocks, are quantities of shares greater than or equal to 10,000 shares.  Block desks are trading operations of a brokerage firm, part of the institutional equity sales department, that handle large block trading for clients. 

Blue Chip.  The cream of the crop, in stocks, the term is usually associated with the Dow Jones 30 Industrial stocks, the so-called blue chip stocks.

Blue Sky Laws.  State securities laws.  In addition, for example, to being passed on by the SEC, before issuing securities to persons in a particular state, the issued must be :blue skied: in the state.  

Bollinger Bands.  Boundaries set up on either side of the moving average of a stock price or index, using statistics. 

Bond.  A security, representing a debt obligation of a company.  It is usually dined in terms of an annual interest rate, a maturity time, and security and seniority in the company’s capital structure, and call provisions.  The specifics of the agreement are laid out in a debtor’s agreement and a trust indenture.  Trust Indentures are governed by the securities laws under the Trust Indenture Act. 

Book (Specialist’s).  On the NYSE the specialist, who handles all of the trading business in a particular security, maintains an order book of all of the orders to buy and sell.

Bricks-and-Mortar Alternative.  The alternative to taking over a company.  One can either build a whole new company, bricks and mortar, or one can try to buy a company that is already put together. 

Brownian Motion.  Originally, used to describe the movement of a dust particle as it moves through the air.  Underlying the process is the collisions of billions of air molecules with the dust particle, randomly knocking it about.  What we observe is the averaged result.  The problem is related to the random walk, which is related to the heat equation, which are related to Gaussian distributions.

Bubble.  A distortionary market phenomena, wherein prices in the market are drastically high compared to reality.  Famous market bubbles include tulip prices in Holland several hundred years ago and the stock market bubble before the stock market crash of 1929.  

Business Risk.  The basic risk, inherent in running a business.  For a sole proprietor and general partners, there is unlimited personal liability beyond the capital at risk in the firm.  For a corporation, business liability matches total liability.

Bride.  The party in a merger or takeover, who is being takeover or being merged into the other, called the groom.

Broker Call Rate.  The interest rate that a broker must pay to borrow money against customer securities in order to provide the customer margin loans.

Bull Market.  A market in which the general trend is upward, usually over a medium to longer time period..

Bull Spread.  A spread in, e.g., options that will make a profit in bullish circumstances.  For example, buying a $55 cal and selling a $60 call of the same or different expiration.

Butterfly (Spread).

Buttonwood Tree Agreement.  The agreement, dating back to the 1700’s, that resulted in the formation of the New York Stock Exchange.

Buy Program.

Buy Side.  Refers to the segment of the investment business beyond the broker dealers who sell securities.  The buy side is comprised of those who buy securities to repackage and sell to other investors, for example mutual funds.

Buy-Write.  The simultaneous purchase and short of, e.g., stocks and options, wherein one buys stock and writes calls against the long stock position.

By Laws (Corporate).



CAL.  Capital allocation line.  The tangent line to the portfolio efficient frontier with intercept at the riskless rate of return.  It is the best risk-return (mean-variance) tradeoff, achieved by holding part risky, part riskless, portfolios. 

Cage.  The area of the back office of securities brokers and dealer where physical paper securities are kept.  It is a vault area, literally caged in.

Call Option.  A contract between two parties giving one the option to buy (call) a stock or other commodity or future.  Today, they are standardized and traded non exchanges.  They have specific prices, the strike price, at which the option can be executed, and an expiration date, the time until which the contract is good.

Call Provision.  A provision in a bond or preferred stock that allows the corporation to call the issue for liquidation before its stated final maturity date.

Callable Bond.  A bond with an additional feature, a call provision, that allows the bonds to be called for retirement before the fixed maturity date.  In effect they are bonds with an option to the corporation to call the bond.  In that regard, the corporation can retire the bonds, early, and issues new bonds at a better rate of interest, should general interest rates fall.

Capital Gain.  The part of investment income that comes from appreciation of the investment asset value, as opposed to dividend or interest income from the investment.

CAPM (Capital Asset Pricing Model).  The market equilibrium model of Sharpe, Lintner and Black that is based on the single factor, systematic risk, or beta.

Cash Flow.  The connection between the income statement and the balance sheet.  It takes income, adds changes in other balance sheet items, and reconciles last year’s balance sheet with this year’s.  Also, the future income stream that an investor is expecting from an investment vehicle.

Cash Ratio.  Cash and equivalents divided by current liabilities.  It is the most severe evaluation of near-term corporate operating liquidity.

CBOE.  The Chicago Board Options Exchange.

CBOT.  The Chicago Board of Trade commodities and futures marketplace.

CD (Certificate of Deposit).  A certificate of deposit is security sold by banks as an alternative to a regular savings account, which, generally pays higher interest than savings accounts but which has restrictions on redemption.  In some countries, they are tradable in the money markets. 

Celler Kefauver Act.

Certainty Equivalent.  The equivalent certain (risk free) amount that a person would trade for a risky bet. 

CFA.  Chartered Financial Analyst.

CFTC.  The Commodities Futures Trading Commission is the government agency, the equivalent of the SEC, that regulates trading in futures in the U. S.

Capitalization Rate.  The interest rate that is used to discount future cash flows of a particular security of investment. 

Chapter 7.  Refers to chapter 7 of the bankruptcy codes: complete corporate liquidation and cessation of corporate existence.

Chapter 11.  Refers to chapter 11 of the bankruptcy codes: reorganization, whereby the corporation attempts to restructure its capital structure, seeks concessions from its debtors, and can reemerge as a going concern, again.  

Charter (Corporate).    

Chartist.  Technical stock analyst who analyzes stock price, volume, and other market information in time series charts in order to predict the future courses of stock prices.

Circuit Beaker.  A market rule, installed to disconnect certain types of trading to reduce volatility.  For example, there are rule on the NYSE that, given a certain percentage move in the market, trading between baskets and market futures is suspended.  That type of rule is necessary because there is no equivalent of the uptick rule for shorting stocks in the futures market.  There are other provisions for several larger percentage changes.  See, e.g., the NYSE’s website. 

Clearing.  The actual process of accounting for and settling trades in the markets. 

Clearing Corporation.  In, for example, futures markets, in order to diminish the potential for default on the terms of futures contracts, the clearing corporation acts in the middle of all transactions and sets margin requirements. 

Clayton Act.  1941 Antitrust law.  The Clayton Act singled out four basic prohibited restraining or monopolistic behaviors, which it declared illegal, but not criminal: price discrimination; tying and exclusive dealing contract s; mergers, and interlocking directorates; with qualifiers such as: tend to create a monopoly, or would substantially lessen competition. 

CMI. (Capital Market Line).  The line in the CAPM theory relating systematic risk, normalized to market risk equals 1, to excess return.  It is a plot of stock beta against excess return.

Commercial Paper.  Unsecured short-term paper promissory notes written by corporations to fund operations on an ongoing basis. 

Commodities.  Exchange-traded assets like grains, precious metals, oil, and the like.  There are both real users of most commodities and there are those who purchase them in search of trading profits.

Common (Stock).  Represents an ownership interest in a company.  It is the least senior of all corporate obligations.  There is also preferred stock.  Although preferred's are also ownership interest in a company, their dividends are more secure, while their participation in corporate affairs, in general, and the fortunes and misfortunes is quite limited.  Common stock is usually what people are referring to when they talk about stocks. 

Compounding.  The process of cumulating the effects of interest.  The usual geometric method of compounding involves multiplying the original amount by one plus the interest rate.  In succeeding periods a one plus interest rate is multiplied onto the prior period result.  In that regard, geometric compounding contains an implicit reinvestment assumption. Compounding can be done, annually, semi-annual, or even continuously. 

Consumer Price Index (CPI).  A government produced index that relates prices of a basket of consumer goods, in the general proportion that the average consumer uses them, to one certain year’s dollars, in order to quantify inflation in the cost of consumer goods.

Contrarian.  Refers to investing in out-of-favor stocks, based on financial analysis, with the expectation that the implicit miss-pricing will eventually be recognized and corrected by the general market.

Convertible. A bond or preferred stock that has attached rights to convert the bond or preferred into common stock under certain conditions and for a certain period of time.

Convexity.  In that the relationship between bond price and yield to maturity is a curve that sags downward, i.e., is convex downward, we talk of the bond’s convexity.  While bond duration describes the sensitivity to ytm changes, the convexity describes the change of the change and provides a means of second-order correction to bond immunization and hedging.

Corner a Market.  Refers to the, assumedly secret, accumulation of shares of a specific company or other investment commodity.  It is a motivation for rule 13-D in securities law.  The assumption is that, if someone controls a market, they can make monopolistic profits.  

Correlation.  The relationship in probability or statistics between tow variables, defined as the covariance of the tow variables divided by both of their individual standard deviations.

Coupon (Bond).  The annual interest paid on a bond.  Thus, the coupon rate might be 7 %, and the coupon payment would be $70 on a $1,000 face value of bond.  Coupons for paper versions of a bond will have coupons attached as part of the certificate.  Then, people talked of “coupon clipping”.  As securities become more and more electronic, the way of the actual paper bond and coupons has moved towards electronic representation.  

Covariance.  The second moment, variance calculation, in probability and statistics, generalized for calculations with two variables.  

Crush Value.  The value of, e.g., soybeans in its product forms of soy oil and soy meal.  It can be compared and arbitraged against whole soybeans.

Current Ratio.  The ratio of current assets to current liabilities in the corporate balance sheet.  It is a measure of near-term liquidity to properly conduct business.

Curb.  A nickname given to the American Stock Exchange.  Stocks of the NYSE exchange, the larger of the two, were traded on the Wall, while stocks of the Amex were trade on the curb.

CUSIP.  Stands for Committee on Uniform Securities Identification Procedures.  It is the number used by the back offices, transfer agents, and clearing corporations to track securities.  There is also cusip international.  ISIN is the numbering system being used by and promoted by EuroNext.


Day Order.  The designation of most orders entered for execution in the stock, bond, and other securities auction markets.  The order is only good for the day that it is entered.   An alternative type of order would be GTC, good til cancel. 

DBA.  A designation for a sole proprietor meaning “doing business as”.  It is the association of a business pseudonym with a person.

DCFV.  Discounted cash flow value, the intrinsic value of an instrument, such as a stock or bond, or of a business, based on the sum of discounted future cash flows.

Debenture.  A long-term debt instrument that is not secured by assets.

Derivative.  A derivative transaction or instrument derives its value from another transaction or instrument.  For example, stock option contracts are derivatives since their value derives from the stock.  Today, there are many other types of derivatives.

Dividend Payout Ratio.  The ratio of total dividends paid out by a company divided by total earnings for the quarter or the year.

Dividend Yield.  The ratio of annual dividend payments for a stock divided by stock price.

DJIA.   Dow Jones 30 Industrial averages.

DK.  Stands for don’t know. It is used in the back office and clearing network to designate a trade that one side does not recognize as a trade that they executed.

Duration.  The duration number for a bond can be described in a number of ways.  Macaulay, who first discussed it, described it as the weighted time to full recovery of an initial investment in a bond.  In that regard, it is an adjustment to the concept of maturity.  Technically, it is related to the sensitivity of percentage price change of a bond with respect to changes in yield to maturity interest rates.



Earnings Retention Rate.  The inverse of the dividend payout ratio, i.e., one minus the dividend payout ratio.  It is equal to earnings after tax less dividends, divided by earnings after tax.

ECN (Electronic Communications Network).  The name used to designate the newer type of electronic market places, as opposed to physical exchanges, like REDI, Instanet, and Archipelago, on which all trades are entered, posted, and matched, electronically.

EDGAR. Electronic Data Gathering and Distribution system for filing and viewing SEC filings.

Effective.   When financial information, like company prospectuses for new securities issues, is finally deemed complete, is passed on by the SEC, and allowed to be distributed to the public, it is said to be effective.

Efficient Market Hypothesis (EMH).  A hypothesis that comes in several version, which states that no one can have an advantage in trading financial assets in the marketplace.

Elliott Wave Theory.   A framework for technical market and stock analysis in which different types of wave crests in stock price movement are the basis.

Emerging Market.  Refers to national markets, in the next tier below the so-called developed countries. 

Equity Funding Corp. of America (SEC vs.).  Important case in which a securities analyst was convicted on inside info charges and was later overturned in the higher court.

EuroNext.  The European-regional exchange formed by the combination of the ParisBourse, the Brussels Stock exchange, and the Amsterdam Exchange.  In addition there have been further affiliation with the LIFFE and the Lisbon Exchange.



Factoring.  A method of short-term business financing whereby accounts receivable are sold to a financial institution, a factor.

Fairness Opinion.  The opinion, based on financial and other considerations, given by investment bankers to a company that is involved in a merger, sale of a division, or similar large events, not in the normal course of business, attesting to the fairness of the transactions to security holders.  These opinions can be found in the documents, like proxy statements or merger prospectuses, required to be issued by a company, in such events, by the SEC.

Fannie Mae (FNMA; Federal National Mortgage Association).   

FASB.  Financial Accounting Standards Board.  A federal agency established to facilitate packaging and pass-through of mortgage debt held by banks.

FD (Rule).  Fair disclosure rule, annexed to securities law, in the 1990’s.  Its objective was to keep some analysts and others from getting more information from companies than other investors.  Since rule FD, companies barely talk to individual analysts, anymore, they make press releases or hold web casts to disseminate information uniformly to all.  Some refuse to talk, at all, except to release the factual financial information.

FDIC (Federal Deposit Insurance Corporation).  Insures consumer savings deposits at federal commercial banks.

Federal Agency Obligations. 

Federal Trade Commission Act of 1941.  The federal act that established the FTC.

Fixed Charges.  The part of a firm’s cost structure that must be paid through the annual course of business whether or not the firm generates sales.  They are contrasted with variable costs, which vary with revenues.

Flat.  In reference to a benchmark index for, e.g., loans and swaps, flat refers to without a premium to the benchmark.

Foreign Exchange.  Refers to foreign currencies.  Foreign exchange rates are the prices of different currencies relative to one another in the market for currencies.

Forward-Looking Statements.  Statements made by companies, in print or in web broadcasts, that relate to future prospects and projections of corporate financials.  Such statements are preceded by a waiver statement, warning of their unpredictable future nature.

Forward Rate.  A future rate, as opposed to a spot rate.

Freddie Mac.

FTC.  Federal Trade Commission, in addition to its other consumer protection duties, oversees mergers under the Hart Scott Rodino ant-trust procedures.

Fundamental Analysis.  Refers to the valuation of corporate equities by analyzing the fundamental financial underpinnings of the company and comparing it with its industry peers and other companies whose stock sells ion the marketplace.  A large part of the analytical framework examines ratios as a means of comparison.  This is as opposed to Technical Analysis, which examines stock market data to value and predict stock prices.

Futures (Contract).  A contract that confers the right to buy a commodity at a future date.  Unlike options, there is no option in the future purchase.



GAAP.  Stands for Generally Accepted Accounting Principles.

Gap.  The exposure to interest rate fluctuations of a matched asset and liability.  For example, a five-year floating-rate loan given to a customer by a bank, who funds the loan by issuing fixed-rate bonds.  The swap market grew out of the need to close up such gaps.

Gaussian.  The famous, symmetric bell-curve probability distribution, also called the normal distribution.  It is completely described by its first and second moments, the mean and variance.

Ginnie Mae (GNMA; Government national Mortgage Association).

GTC.  Good til cancel order is a security order to buy or sell that can endure beyond one day.  Contrast this to a day order, the normal order in securities transactions, which is only good til the close of business on the day in which it was entered.

GDP.  Gross Domestic Product.



Haircut.  Capital charge for broker-dealer on long positions.  Like in a margin account for a retail or institutional investor, the haircut is below the 50% requirement for those accounts. 

Hart-Scott-Rodino (HSR).   The process for filing materials with the FTC or DOJ when someone buys 15% or more of a company or announces the intention for takeover or merger.  The HSR Act and its amendments are part of anti-trust law.  Under the act, and its recent up dating, companies must go through a process in which the government either blesses or makes known its intentions to legally oppose a merger of a U.S. company.  One feature of the process is that there is a 30-day waiting period, which can be annexed by an additional 15-day period, upon request for additional information, in which the government agency has time to analyze the anti-trust consequences of the proposed merger.  Companies of international scope might have to make similar filings and go through similar approval processes in a number of countries throughout the world.

Hedge.  A contra position to another position that acts to counterbalance movements of the other.  For example, a way to hedge a stock position is to sell in-the-money calls against it, so that losses in the stock position will be made up by gains in the short call position.

Hedge Fund.  An investment fund that trades in arbitrage of one sort or another or in inefficient markets. 

Herfindahl-Hirshman Index (HHI).  An index that is used by the government in antitrust analysis to analyze industry concentration affects of mergers.  

Holding Period.  The actual past period of time over which an investment is held. 

Horizon.  The expected future period of time over which an investment is expected to be held.


Immunization.  A method of hedging bond and asset-liability portfolios against interest rate risk, using duration analysis.

Implied volatility.   Refers to the value for a security’s volatility, in terms of variance, that is found by using the Black Scholes option pricing model and, instead of solving that equation for the option price, inverting the equation, using option prices as inputs, and solving backward to get a value of volatility, implied by the reverse-engineered solution.

Indenture.  The formal agreement between the issuer of bonds and bondholder.    The indenture is executed for the shareholders by a trustee.  These things are covered under federal law by the Trust Indenture Act of 1939.

Index Fund.  A mutual fund that holds securities in the exact proportion as they are included in some market index, like the S&P 500 Index, or the Dow Jones Indices. 

Indexing.  Composing an investment portfolio in the same proportions as stocks in a particular market index.

Information Statement. 

Inside Information.  Material non-public information of a corporation that could be used to amass profits, unfairly.  To possess it is not illegal.  To trade on it is unethical and quite illegal.

Inter-Bank Loan Rate.  Basically, the bank wholesale market for interest rates.  In the U.S. the supply chain begins at the Federal Reserve’s “discount window” and the federal funds discount rate.  Inter-bank loan rates like LIBOR are also used for benchmarking some financial agreements, like interest rate swaps.

Intermarket Trading System.

Internal Rate of Return.  In valuation of a sum of discounted cash flows, the internal rate of return is the interest rate that solves the problem.  In other words, implicit, in the calculation of summary discounted cash flow, is reinvestment of each year’s income at the discounting rate that is used for the valuation of the sum, thus, yield to maturity calculations assume such internal returns, and the ytm describes the correct return of the whole exterior plus internal process.

Intrinsic Value.  For a stock or a bond, intrinsic value refers to the value that results from discounted cash flow valuation.  For an option, intrinsic value refers to the value found by subtracting strike price from the stock price.

Inventory Turnover.  Sales divided by Inventories is used to analyze how efficiently a company manages inventor versus sales.

Inventory-Sales Ratio.  Inventory divided by sales, the inverse of inventory turnover, is the figure published for various industries by the government.

Investment Banker.  A middleman in hooking up companies in need of capital and investors.  They do private placements, public offerings, as well as consulting on capital structure and mergers.

ISIN.  International Securities Identification Number System.  A securities numbering system in competition with CUSIP.



Joint Venture.

Junk Bond.  Speculative-grade corporate debt obligations.  Under the S&P rating system, theses bonds are rated BB to CC.



Kansas City Board of Trade.  The oldest commodities market in the U.S.  Trading is available in various commodities and futures.

Keough Plan.  A type of tax-deferred retirement savings plan available to the self-employed.

Kurtosis.  The so-called fourth moment calculation for a probability distribution.  It has to do with how much the distribution is spread out.  In that regard a normal, or Gaussian probability distribution has a specific kurtosis value of zero.  Other distributions can be more or less spread out than a normal distribution, and they will have non-zero kurtosis (kur).




Lagging Indicator.  An indicator of economic or business activity whose movements, up and down, lag the moves of indicators of actual economic or business activity. Some examples include the CPI for services and average duration of unemployment.

Large-Cap.  Stocks with large relative stock market capitalizations.  Also used to describe mutual funds that invest, exclusively, in stocks with large capitalizations.

Leading Indicator.   An indicator of economic or business activity whose movements, up and down, precede the moves of indicators of actual economic or business activity. Some examples are: manufacturers new orders, consumer expectations, and initial claims for unemployment.

Legal List.  List of allowable investments for mutual savings banks, insurance companies, and similar fiduciary institutions.

Leveraged Buyout (LBO).  The purchase of a whole corporation in which the majority of financing is done with debt.

LBO.  Leveraged Buyout.

LEAPS.  Long-term Equity Anticipation Securities are stock option with an expiration of more than a year.

LIBOR.  London Inter-Bank Offered Rate.

LIFFE. London International Financial Futures Exchange, now part of the EuroNext group of exchanges.

Limit Order.  Securities or commodities order that places a specific number, the limit, on the buying or selling price.

Liquidity Premium Hypothesis.  One of the hypothesis to explain the term structure of interest rates, wherein it is hypothesized that investors pay a premium for shorter duration securities, partially explaining why term structures are, in general, upward trending, required rates of return, increasing, prices decreasing, as maturity time increases..



Maloney Act.  A 1936 amendment to the Securities acts, which made room for inclusion of the over-the-counter markets in the regulatory framework.

Manipulation.  Any act in trading that is designed to control or unnaturally affect prices.  Examples are: starting a false rumor to inflate or deflate prices, wash sales, and secret accumulation.

Margin.  Refers to the amount of investment capital that the investor has to put up to execute trades.  For stocks, the margin requirement is 50 percent.  For commodities futures, it can be as low as 3 to 10 percent.

Margin Call.  A call from your broker that requires you to put more cash into your securities or commodities account because, e.g., the value of the positions in your account has fallen and the ratio of investment capital equity to total value is below the margin requirement.  

Marginal Productivity of Capital.  Economists’ name for the real interest rate, before inflation. 

Mark-to-Market.  The process of valuing securities and securities accounts at the closing prices of the securities at the close of the trading day.

Market Index.  An index, based on the combined prices of the index constituent stocks or commodities.  Some indexes are price weighted, while others weight the constituents in proportion to their market capitalizations.

Market Maker.  A person who stands in a market, ready to buy and sell a security or commodity to other investors, making a market.  On the floor of the NYSE, specialists control all of the buying and selling of a security, while the NASDAQ is made up of many people making markets in each stock, all connected by computerized platform for executing trades. 

Market Order.  An order to buy or sell securities, commodities, and the like “at the market”, i.e., at the current best bid (for market sell orders) or the best offer (market buy orders).

Market Segmentation Hypothesis.  Hypothesis to partly explain the term structure of interest rates that talks of the segmentation of the market for interest rates.  In that regard, people seeking a home mortgage money are not in the same market as those looking for a few thousand dollars to buy a home entertainment system; neither are the lenders to those two groups.

Market.  In investment asset trading, it refers to a market of dealers, an exchange, electronic or some other sort of continuous auction market in the assets.

Markov Condition.

Markov Process.  A random process without serial correlation.

May Day.  The day in May 1975 when fixed commissions for stock transactions were phase out.  

Member.  The only people allowed to execute trades on exchanges are members of the exchange.  Thus, when a customer wants to execute the trading of a security or commodity on an exchange, the trade must ultimately be executed by a member, who collects commissions for execution.  Members become members by purchasing a seat, which represents their ownership equity in the corporation that operates the exchange.

MENA.  Acronym for Middle East North African region.

Merger.  Is the combination of two firms into one.  This is accomplished by the purchase or exchange of all of the equity shares of the one by the other.

Mid-Cap.  Describes a stock or fund of stocks, which have relative medium-sized market capitalizations.

Money Market.  Financial market in which funds are borrowed and lent on a short-term basis, about a year or less, as opposed to capital markets in which funding is loner-term.

Mortgage Backed Securities.  Securities issued against a pool of mortgage loans, such that the securities lay claim to the mortgages and payments on the mortgages are passed through to the securities holders. 

Moving Average.  For example, a moving average of stock price, volume, or another variable is the average of the price for a certain number of trailing days, such that, in each succeeding day, the oldest day drops out of the average and the latest day’s data is included.  For example we could calculate the 30-day moving average of a stock price.

MPT (Modern Portfolio Theory).  The theory of [portfolio construction based on mean and covariance of returns.  It results in the efficient frontier and the CAL.

MSCI.  Morgan Stanley Capital International.

Municipal Bond.  Bonds issued by government municipalities, as opposed to the federal government. Most mutual bonds offer a tax advantage to investors by making the interest payments non-taxable.  

Mutual Fund.  Usually, this term is reserved for investment funds that offer shares to the public. 



NAICS.  North American Industry Classification System is the 6-digit industry classification code that breaks down industries into over 1,000 industries.

Naked.  Refers to, for example, a short stock option position with no protection.  To cover such nakedness could be accomplished by, e.g., purchasing a counterbalancing long potion in the underlying stock, by buying a counterbalancing position in calls with a different strike price. 

NASD.  National Association of Securities Dealers is the oversight body for securities brokers and dealers.  The sell-side of the investment business is over seen by self-regulatory bodies like the NASD or the exchanges, with ultimate authority in the SEC.  The NASD also does testing and training of individuals, like the series seven test.

NASDAQ.  National Association of Securities Dealers Automated Quote system is also called the over-the-counter (OTC) market.  Unlike the physical exchanges, like the NYSE or the AMEX, the NASDAQ system connects market-makers in all of the stocks included.  Access to the market maker data is accessed on several levels.  For a normal retail customer, the only thing that she can see is the inside market.  Other levels allow visibility and the further ability to enter bids and asks into the system as an individual market maker.  

NAV.  Net asset value of a mutual fund.  

Net Asset Value.  The value of a mutual fund based on the mark-to-market prices of securities held in the fund's portfolio less liabilities. 

New York Stock Exchange.  The major exchange for trading stocks in the U.S.  

New York Mercantile Exchange (NYMEX).  A commodities futures market in New York City. 

Nickel.  The minimum increment for price moves, bids, and asks in the U. S. options markets.

NIPA. National Income and Product Accounts of the U. S. economy.

Normal Distribution.  Another name for the prefect bell-curve Gaussian probability distribution.  

North American Industry Classification System (NAICS).  Is the 6-digit industry classification code that breaks down industries into over 1,000 industries.

Nouveau Systeme de Cotation.  The electronic order routing and execution system of EuroNext. 

NYSE.  The New York Stock Exchange, the largest and most prestigious stock exchange in the world.

NYSE Composite Index.  A market-capitalization-weighted index of all of the stocks that are listed and traded on the NYSE.



Odd Lot.  An amount of stock, less than 100 shares.  Normally stocks are sold on the exchanges in lot of 100.

Offer (Price).  The price at which a security or commodity is offered for sale, in the auction market.

Open Interest.  The amount of the underlying investment asset represented by a particular expiration and exercise for an option or future.   

Open Outcry.  The method of buying and selling in some commodities exchanges, wherein brokers in the pits yell out the orders that they have to buy and sell, in order to find some one to take the other sides of trades.

Operating Leverage.  Refers to the initial leverage provided by division of a firm’s cost structure into fixed costs and variable costs.  Also, called first-stage leverage, as opposed to second stage leverage, provided by capital structure.

Option (Contract).  A, now standardized, contract that options the purchase or sale of a stock or other investment asset at a specified price, the strike price, for a limited amount of time, the expiration date.  Stock options in the U.S. have lifetimes of up to about a year. 

Option : Flexibly-Structured.

Options Replication.  The process of using an asset and options, thereof, to create a position, equivalent to another option.  


OTC.  Over-the-counter  

Out-of-the-Money.  Refers to an option whose exercise price is below (for calls), above (for puts) the price of the stock.



Over-the-counter.  A term originally used to describe the dealer market for stocks that were not traded on exchanges.  The NASDAQ was the original OTC market for stocks.



PE Ratio.  The price of a stock divided by its earnings per share.  Definitions vary, in financial information listings, in that earnings might be the last full year, the latest 12 months, or next year’s projected earnings.  It is, effectively, an inverse interest rate.  In that regard, the inverse PE is often referred to as the capitalization rate.

Par Value.  When a stock is initially sold by a corporation, there is a stated value, usually minimal, of the shares.  In the corporation’s accounts, the equity is broken down into the par value, the contributed capital, in excess of par, the value of the initial sale price less par, plus earnings that are retained by the corporation as time goes on.

Parking.  When one person uses another person’s securities account for purchasing or selling shares, the practice is referred to as parking.  It is illegal under the securities laws to park securities.  It flows from the full and fair disclosure mandate of securities laws.  In that regard, people are prohibited from secretly amassing positions in securities by hiding transactions behind the account owner’s name.

Peer.  A term used by institutional investors, such as endowment funds, for other entities with whom to compare and judge their own investment performance.  For example, Harvard might consider Yale a peer in endowment fund comparison.

Pink Sheets.  The part of the OTC market that does not have enough market capitalization or interest to trade on the regular NASDAQ electronic system.  It is virtually a set of pink sheets with the names of these smaller companies and phone numbers of market makers to call about buying and selling the stocks.

Pit.  In many commodities markets there is a sunken trading area with galleries extending from the area, which is referred to as a pit.

Portfolio.  A basket of investment assets.

Portfolio Theory.  The theory put forth by Harry Markowitz that uses mean-variance analysis to find the minimum risk portfolios for a given amount of expected return.

Preemptive Right.  A right conferred, in corporate charter or by-law, to common shareholders the right to purchase, on a pro-rata basis, new issues of common stock.

Preferred Stock.  Stock that is senior, in the capital hierarchy of a corporation, to common stock.  It represents a limited ownership interest in the corporation

Present Value.  The discounted value of a future payment, found by dividing the future payment by 1 plus an interest rate compounded to the future year.

PRIME.  Prescribed Right to Income and Maximum Equity.  A derivative instrument, invented in the 1980’s, that represented the dividend income portion of a stock, while the capital gain portion was split off into a SCORE.

Prime Rate.  The interest rate charged by banks to better business borrowers.

Principal (Amount).  The face value of, e.g., a bond.  The face value amount of a loan.

Private Capital.  Capital and the funds that manage it, investing in taking corporation private and in corporations that have not yet gone public.

Private Market Value.  The value of a company’s stock, based on discounted cash flow, assuming that all of its stock is purchased and retired from trading in the market.

Private Placement.  As opposed to a public offering of securities, a company might be able to find one or a few investors who will buy an entire issue of securities.  Such investors must also bear the risk of illiquidity of the investment asset.

Private Securities Litigation Reform Act of 1995.


Proprietary Trading.  Although a large part of a securities brokerage firm’s business is securities sales, there is another segment of the business in which the firm risks its own money trading in various venues in the markets: proprietary trading.

Prospectus.  A document with financial and business data that must be prepared by a company who wants to issue securities to the public.  It must be submitted for review by the SEC.  No statements or promises may be made to investors above or beyond what is contained in these documents.

Proxy.  The assignment of power, usually to vote, by a shareholder to, e.g., directors of the company to vote the shares as they see fit.  Proxy solicitation is the process of trying to get shareholders to sign over their votes.  Proxy solicitation and proxy materials are regulated by the SEC.

Prudent Person Rule.  The standard that measures strategy or tactics against those which a prudent person would consider as reasonable.

PSE.  Pacific Stock Exchange.

PUHCA.  Public Utilities Holding Company Act.

Purchasing Power Risk.  Risk can be broken down into a number of composing factors.  One risk, purchasing power, is that risk that a dollar, today, will not be able to purchase as much in goods and services at a time in the future.  

Put Option.  An option contract to sell.



Quick Ratio.  Is equal to current assets, less inventories, divided by current assets.  It is a more strict test of near-term operating liquidity than the current ratio, but less than the cash ratio.



R-Squared.  The number in statistical regressions equal to explained variance divided by total variance. 

Random Walk.  A name to describe phenomena, like Brownian motion, diffusion, and microscopic stock price movements.  It is the chatter, about a mean.  It is the mark of the fair game.  

Ratio Analysis.  In finance and investment, absolute values of financial data are not useful for comparison.  For example, instead of actual dollar return on investment, it is more interesting to look at the ratio of dollar return to dollar investment, i.e., rate of return.  Similarly, it is more useful for comparison to look at inventory-to-sales ratios of several companies rather than their absolute inventory levels.  This sort of ratio analysis is at the heart of traditional securities valuation methods.

Real Asset. As opposed to paper assets, like securities, e.g., plant and equipment.

Real Estate Investment Trust (REIT).  A legal structure, alternative to incorporation or partnership, whereby real estate assets are pooled, and trust certificates are issued against it, much like stock is issued against net corporate assets. 

Rebalancing. The process of buying and selling shares for a portfolio in order to bring the percentage proportions of assets held in the portfolio into line with the stated target weightings for those assets. 

REDI System.  An ECN, owned and operated by Spear Leeds Kellogg.

Reg D.  An exemption for registering certain securities under the U. S. securities laws.  So-called Hedge Fund partnerships frequently have used to exemption to sell partnership shares to wealthy, accredited investors.

Reg T.  The securities regulation that deals with margin and assigns the job of setting margin limits to the Federal Reserve.

Registered Principal.  Under the rules of the NASD, a person must be tested, vetted, and eventually registered to act as a principal in the securities business and have responsibility and oversight over others, in the U. S. 

Registered Representative.  An employee in the securities industry who has passed the series seven exam and is qualified to take customer orders.

Registration Statement.

Regression.  A method of least squared error fit of a line to a scatter plot of two variables, one assumedly partially dependent on the other.  Its results have an interpretation in statistical terms.

REIT.  Real Estate Investment Trust.

Relative Strength Index (RSI).

Reorg Department.  The section of the back office of Wall Street firms that deals with things like one security being exchanged for another in a merger or reorganization.

Reorganization.  Chapter 11 bankruptcy solution, wherein a company, under the protection of bankruptcy law and the guidance of  the courts, refinances and reorganizes its financial structure.  After going through reorganization, the company can re-emerge from bankruptcy as a goin concern.  In the alternative form of bankruptcy, Chapter 7 liquidation, the company completely liquidates and ceases to exist.

Replacement Cost Value.  The amount of money that it would take, in current dollars, to reconstruct an operating company, from the ground up.  It is another gauge of the worth of a corporation, beyond accounting statement value and stock market value.  It is the basic bricks-and-mortar alternative value.

Repo.  Repurchase agreement

Repurchase Agreement.  An agreement made between two parties whereby one part sells the right to ownership of specified securities and simultaneously agrees to repurchase the right at a higher price at a specified future date.  They are used as a means of short-term financing with the difference in selling and repurchase price representing a short-term rate of return.  The other factor that motivates these transactions is that seller of the repo agreement does not have to sell the securites in the market and potentially lose out on opportunities or incur round-trip transaction costs. 

Reverse Repurchase. The converse transaction of a repo. 

Resistance.  In technical trading, an area of price through which it is difficult to extend a trend., either upward or downward.

Restricted Stock.


Risk.  In finance, risk is traditionally defined as the chance that a future outcome will be different than the expected outcome, the larger the differnce, the larger the risk. 

Riskless Rate of Interest.  The rate of return that corresponds to the lowest risk investment vehicles, usually taken as U.S. government debt obligations, Treasury bills, notes, and bonds.

Restrictive Covenants.  Covenants, particularly in debt agreements and takeover agreements, that restricts the company in its business.  For example, a debt covenant might read: that the company cannot take on any debt, senior to the issue.  It might be that the company is restricted in the dividends that it can pay out.  

Robinson-Patman Act.  

ROI.  Return on Investment.

Royalty Trust.  For example, in the oil and gas industry, certain producing properties are put into a royalty trust.  The trust will general have contracts to sell the O&G and there will be a certain amount of reserves.  The royalty trust is a sort of stripped investment in oil and gas production, in that the upper levels of and oil company have been stripped away.

Rule FD.  Fair disclosure rule, annexed to securities law, in the 1990’s.  Its objective was to keep some analysts and others from getting more information from companies than other investors.  Since rule FD, companies barely talk to individual analysts, anymore, they make press releases or hold web casts to disseminate information uniformly to all.  Some refuse to talk, at all, except to release the factual financial information.

Russel Indexes.  Larger scale stock market indexes tabulated by Russel. 


S&P.  Standard and Poor's Company, now owned by McGraw Hill.

SCL.  Security characteristic line, which is the basic relationship to define stock alpha and beta..

SCORE.  Special Claim on Residual Equity


SEC.  Securities and Exchange Commission.

Sarbanes-Oxley Act.

Seat.  Represents an exchange member’s ownership interest in the exchange.

Security.  The paper that derives its name from the terms of the underlying agreement, wherein paper, the security, represents a claim on assets, which secure the loan or ownership security.

Securities Act of 1933.

Securities and Exchange Act of 1934.

Securities and Exchange Commission.  The commission established under the securities acts of the 1930’s after the famous stock market crash of 1929.  The commission was set up to oversee the process of securitization and public distribution of securities of corporate entities, the people that deal and trade in them, and the exchanges on which they are traded.  

Securities Investor Protection Act of 1970.

Securities Investor Protection Corporation.

Security Characteristic Line.

Security Market Line.

Selling Group.  A group of brokerage firms who are joined together for the purpose of selling a new issue of securities.  

Serial Correlation.  Correlation 

Series Seven.  The test that must be passed by all employees of securities firms, in order for the person to be allowed to deal with the public and take orders.



Shareholder-of-Record. The actual shareholder on the record books of a corporation, entitled to some right, conferred on a certain record date, for example, dividend distributions or voting rights. 

Sharpe Ratio.  The ratio of expected return to risk (variance).  It is meant to risk-normalize returns.

Shelf Registration.  

Sherman Act.

Short.  A short sale of a security or commodity involves borrowing the security or commodity from someone, just like you would borrow money or sugar from a neighbor, then, selling the security or commodity in the market.  Eventually, the security or commodity must be repurchased in the market by the borrower and returned to the original owner to repay the borrow.  The objective is to sell now and repurchase at a later time, if you think that the security or commodity is currently overpriced.  Futures and options can also be sold short, but there is no need to borrow: you just "write" and sell the contract.  When you short sell you, then, have a short position, and a negative amount of the security or commodity will appear in your investment account. 

Short-against-the-Box.  Short and long the same security in the same number of shares.  It has tax advantages for aging capital gains.

Short Interest.  The amount (number) of outstanding short shares of a stock or the number of existing futures or options contracts of specific series and expiration, outstanding. 

Short Tender.  Refers to tendering more shares into a cash tender offer than are owned.  The motivation for such a practice is in partial tender offers, in order to beat the prorating mechanism in such partial offers.  The practice is illegal.  In fact, one cannot even legally tender shares into a tender offer, if one is short call options against the shares.

SIC.  Standard industrial classification system; currently being replaced by the NAICS system.

Sinking Fund.  An account set up to amortize payment of principal of a loan or debenture.  Funds are paid into the account at specified intervals.  The account can be funded with cash or marketable securities.  Sometimes the funds are used to retire debt by call, tender or in the marketplace.   

SIPC.  Securities Inventors Protection Corporation.

Small-Cap.  Refers to stocks and funds of stocks that have small relative market capitalization.  


Sole Proprietorship.  Business form in which one person owns the business.  There need be no stock to represent the business since it has only one owner.  However, there may be severe limitations on the business’ ability to raise capital.  Their only recourse for additional capital is through loans and retained earnings.

SPDA.  Single premium deferred annuity.

SPDR.  Standard and Poors 500 Index depository receipts. 

Specialist.  On the floor of the NYSE there is only one place that you can buy and sell a specific security: at the post of the specialist in the security.  The specialist holds a book of all orders, matches sides for transactions, and uses his own capital to help smooth out order flow.

Spin-off.  In contrast to mergers and takeovers, sometimes, company’s spin-off businesses.  In a typical spin-off of a corporate division or business, the company is put, if it is not already, into a separate corporate paper form, and the shares are either distributed to existing shareholders or offered in a public offering to everyone.

Spot Rate.  The price in the commodities markets, including currencies, for immediate deliver, as opposed to a forward rate for forward future delivery.  

Spread.  Used in several circumstances.  For discussions of interest rates and bonds, the spread would be the differential interest rate between two different interest rates.  In options and arbitrages, it is the differential between a short and long hedged position.  In fact, such positions are referred to, themselves, as spreads.

Spyders.  Another name for SPDR's because the symbol for the index shares is SPY.

Standard Deviation.  The square root of the variance in probability and statistics.

Standard Error.  In regression analysis, it is the standard deviation of the residual errors.

State Preference Model.  A model of behavior that examines choice under uncertainty in which decisions are based on probabilistic outcomes for payoffs under specific future states of the world. 

Stochastic Process.

Stochastics.  A method that brings in statistics to technical stock and commodity analysis.

Stock.  A security that represents ownership interest in a corporation.

Stock Basket.  A specific portfolio of stocks, usually used to trade against stock index futures.

Stop (Loss).  An order to buy or sell a security, if the price breaks through a specified price.  For example, if a person purchases stock at $50, she enter a stop loss order at $48, in order to limit her losses, if the price, thereafter, declines.

Straddle.  A combined put-call position, usually a purchase (long straddle) of both with the same strike price or sale of both (short straddle).

Street Name.  Customer stock held in margin accounts is registered in the name of the broker.  Thus, margin stock is said to be held in street name.

Strike Price.  The price at which, e.g., an option can be exercised.

Strip.  An annuity security created by cutting off (stripping) the coupon portion of a corporate bond and selling it seperately from the face value portion, which is, then, also sold as a zero-coupon bond.

Swap. Refers to an exchange of payment obligations between two counterparties.  For example, an ordinary interest rate swap involves swapping between fixed and floating rate payers on a notional principal amount. 


Subscription Price.  The price at which a security may be purchased in a rights offering.  

Syndicate.  The name used for a group of underwriters who have come together to form a syndicate to, e.g., sell a new IPO.

Synthetic (Position).  A position composed with stock options that acts like a long or short position in stock.  For example, buying a put and a call of the same strike price creates a synthetic long position in stock.





Takeover.  A business transaction wherein one corporation buys another, outright, by one means or another, and takes over the operations of the company.

Tape.  Refers to the streaming sales data of securities transaction.  Now, they are available on computer screens; in the beginning, they came across on ticker tape machines.

Tax Shelter.  The name used for plans, such as retirement plans, that result in tax deferral.  Thus, they shelter the individual from paying taxes.

T-Bill.  U.S. Treasury debt obligation with a maturity of six months or less.

Technical Analysis.  An analytical system of stocks and commodities that uses market data, like price changes and volume, as opposed to corporate financial data, to predict prices of the assets and the  movements, thereof, and uses them as a basis for general trading strategies.


Third Market.

Ticker.  Usually, today, used to refer to the symbol of a security, as it appears on the tape.

Tombstone (ad).   The sparse advertisement for announcing the sale of securities in an initial public offering.

TRIN (Trading Index).

Triple Witching. 

Trust Indenture Act.  The 1941 securities act that governs bond indentures and the trustees who oversee their execution.



Underwriter. The name used for an investment banker who guarantees the sale of an IPO.  In that regard, the investment banker agrees to purchase any of the IPO that he cannot sell to the public in the offering.

Unit Investment Trust.

Upstairs. In a brokerage operation, it refers to that part of the securities sales operation that is not on the floor of the exchange: it is upstairs.

Utility Theory.  An economic theory that describes demand in terms of how useful a product or service is to the ultimate consumer, its utility.  In investment theory, it is the utility of wealth that is the key object of the analysis.



Value Line.  A stock and bond research and evaluation service.

Value Stock.  A stock supposed to have inherent value, as opposed to potential growth in earning.

Variance.  A measure from probability and statistics that is equal to the second-moment of the probability distribution.  It is the weighted-average square distance from the mean.

Venture Capital. Seed money for businesses that need money but are not big enough or known well enough to make a public offering of securities.

VIX Index.  The CBOE options volatility index.

Volatility.  A measure of variability of, e.g., returns.  It is normally quantified in terms of statistical or probabilistic variances.



Warrant.  In the U.S., a long-term option to purchase common stock of the company, issued by the company, at a specified price. In Australia, warrants are packaged and issued against securities by securities dealers.

Wash Sale.  A transaction in a traded security wherein the purchaser and seller are the same person or entity.  In that regard, such trades would create the appearance of activity in the security and are forbidden under securities law.   

WEBS.  World equity benchmark shares.

When-Issued.  In some situations, particularly spin-offs, after the prospectus of the spun-off share becomes effective bur before it is issued, traders will establish an OTC trading market for the shares on a when-if-and-as-issued basis.

White Knight.  A person or company who offers to take over a company involved in a hostile takeover.

Write.  When a person sells an option, short, the person is effectively creating the option contract; he has written the option contract.

World Equity Benchmark Shares (WEBS).  Index funds, composed in the proportions in which they are included in, e.g., one of the MSCI foreign stock market indexes.

Working Capital.  The current assets of a firm.  Net working capital is current assets minus current liabilities.




Yield. Rate of return on investment.  For multiple year cash flow instruments, it is the effective internal rate of return (IRR).

Yield Curve.  The curve mapped out by plotting yield-to-maturity interest rates against time to maturity.

Yield-to-Maturity (YTM).  The effective internal rate of return in the bond valuation equation.

YTM (ytm).  Yield to maturity.



Zero-Sum Game.  A game in which the sum of losses and winning among the participants is equal to zero.

Zero-Coupon Bond.  A bond with zero-coupon payments,  In that regard, all of the value of the bond is in its future principal payment

Zero Risk.  Usually, used to describe investments with effectively zero default risk, like the securites sold by the U.S. Federal Government or governments of other financially stable nations.

Zeta.  The score in Altman’s multivariate analysis of the likelihood of bankruptcy for a firm.  One calculates a zeta- or Z-score and compares it to that of the discriminant line. 

Z-Score.  Score for Altman’s multivariate analysis of the likelihood of bankruptcy of the firm.  

Greek Letters


Alpha (a).  A statistic from the security characteristics line analysis.  Alpha is the intercept of the return axis when the market return is zero.  It is, therefore, not part of systematic risk.  For example, if a stock has a positive alpha of 5%, that means that its expected return will be 5% per year, even when the return on the market is zero.  Second definition: Alpha is a risk-adjustment coefficient in the certainty equivalent theory.



Beta is William F. Sharpe’s surrogate for systematic risk of investment assets.  It is equal to the covariance of the asset with the market divided by variance of the market.  Statistically, it is found from a regression of the asset’s excess return, above the riskless rate of return, and the excess return of the market.


Delta.  For hedged positions, delta is the perfect hedge ratio, and one speaks of delta-neutral positions.





Zeta.  The score in Altman’s multivariate analysis of the likelihood of bankruptcy for a firm.  One calculates a zeta- or Z-score and compares it to that of the discriminant line.



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