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Investment Terminology Part 2 (249-497)


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Investment Style
The method an investor uses to take active positions in certain types of securities.
Investment Value
The present value of a security's future prospects as estimated by well-informed market participants.
January Effect
An empirical regularity whereby stock returns appear to be higher in January than in other months of the year.
Junk Bonds
See Speculative-Grade Bonds.
Keogh Plan
A tax-advantaged means by which people who are self-employed (or otherwise have no access to an employer-sponsored retirement plan) can set aside income on a before-tax basis and invest tax-free until the original funds and subsequent earnings are withdrawn.
Lagging Indicators
Economic variables that have been found to follow movements in the economy.
The expected return premium (above the riskfree rate of interest) per unit of sensitivity to a particular common factor. Also, the sensitivity of the price of an option to changes in its volatility
Leading Indicators
Economic variables that have been found to signal future changes in the economy.
Letter Stock (alternatively, Restricted Stock)
Stock that is unregistered and sold directly to the purchaser, rather than through a public offering. Such stock must be held at least one year and cannot be sold even at that time unless certain information on the company is available and the amount sold is a relatively small percentage of the total shares outstanding.
Leveraged Buyout
A situation in which a private investment group, using substantial amounts of debt financing, buys all of the shares of a publicly held firm, thereby gaining complete control of the firm.
Limited Liability
An aspect of the corporate form of organization that prevents common stockholders from losing more than their investment if the corporation should default on its obligations.
Limit Order
A trading order that specifies a limit price at which the broker is to execute the order. The trade will be executed only if the broker can meet or better the limit price.
Limit Order Book (alternatively, Specialist's Book)
The records kept by the specialist identifying the unfilled limit, stop, and stop limit orders that brokers want to execute in a particular security.
Limit Price
The price specified when a limit order is placed with a broker, defining the maximum purchase price or minimum selling price at which the order can be executed.
Liquidity (alternatively, Marketability)
The ability of investors to convert securities to cash at a price similar to the price of the previous trade in the security, assuming that no significant new information has arrived since the previous trade. Equivalently, the ability to sell an asset quickly without having to make a substantial price concession.
Liquidity Preference (Premium) Theory
An explanation of the term structure of interest rates. It holds that the term structure is a result of the preference of investors for short-term securities. Investors can be induced to hold longer-term securities only if they expect to receive a higher return.
Liquidity Premium
The expected incremental return of longer-term securities over shorter-term securities that compensates investors for the greater interest rate risk entailed in holding longer-term securities.
Listed Security
A security that is traded on an organized security exchange.
Load Charge
A sales charge levied by a mutual fund when an investor buys its shares.
Load Fund
A mutual fund that has a load charge.
Local (alternatively, Scalper)
A member of an organized futures exchange who trades for his or her own account and has a very short holding period.
Long Hedger
A hedger who offsets risk by buying futures contracts.
Low-Load Fund
A mutual fund that has a small load charge, usually 3.5% or less.
Maintenance Margin Requirement
The minimum actual margin that a brokerage firm requires investors to keep in their margin accounts.
Majority Voting System (alternatively, Straight Voting System)
In the context of a corporation, a method of voting in which a stockholder is permitted to give any one candidate for the board of directors a maximum number of votes equal to the number of shares owned by that shareholder.
Managed Investment Company
An investment company with a portfolio that may be altered at the discretion of the company's portfolio manager.
Management Buyout
A situation in which the existing management of a publicly owned firm, perhaps joined by an outside investment group, buys all the shares of the existing stockholders, thereby gaining complete control of the firm.
Margin Account
An account maintained by an investor with a brokerage firm in which securities may be purchased by borrowing a portion of the purchase price from the brokerage firm or may be sold short by borrowing the securities from the brokerage firm. Marginal Tax Rate The amount of taxes, expressed as a percentage, paid on each addition al dollar of taxable income received.
Marginal Utility
The extra utility that a person derives from engaging in an extra unit of economic activity such as work, consumption, or investment.
Margin Call
A demand upon an investor by a brokerage firm to increase the equity in the investor's margin account. The margin call is initiated when the investor's actual margin falls below the maintenance margin requirement.
Margin Purchase
The purchase of securities financed by borrowing a portion of the purchase price from a brokerage firm.
The difference in prices between what an investor's broker receives and what the investor receives for a security sold in the over-the-counter market.
Marked (or Marking) to the Market
The process of calculating, usually on a daily basis, the actual margin in an investor's account. Equivalently, the process of adjusting the equity in an investor's account to reflect the changes in the market value of the account's as-sets and liabilities.
See Liquidity.
Market Beta
See Beta.
Market Capitalization
The aggregate market value of a security, equal to the market price per unit of the security multiplied by the total number of outstanding units of the security.
Market Discount Bond
A bond issued at par, but currently selling that sells in the secondary market at a price below its par value.
Market Discount Function
The set of discount factors on all default-free bonds across the spectrum of terms-to-maturity.
Market Index
A collection of securities whose prices are averaged to reflect the overall in-vestment performance of a particular market for financial assets.
See Dealer.
Market Model
A simple linear model that expresses the relationship between the return on a security and the return on a market index.
Market Portfolio
A portfolio consisting of an investment in all securities. The proportion in-vested in each security equals the percentage of the total market capitalization represented by the security.
Market Risk (alternatively, Systematic Risk)
The portion of a security's total risk that is related to moves in the market portfolio and, hence, cannot be diversified away.
Market Segmentation Theory
An explanation of the term structure of interest rates. It holds that various investors and borrowers are restricted by law, preference, or custom to certain maturity ranges. Spot rates in each market segment are determined by supply and demand conditions there.
Market Timing
A form of active management that entails shifting an investor's funds between a surrogate market portfolio and the riskfree asset, depending on the investor's perception of their relative near-term prospects.
The difference in prices between what an investor pays and what the investor's broker pays for a security purchased in the over-the-counter market.
Maturity Date
The date upon which a bond issuer promises to repay investors the principal of the bond.
May Day
The date (May 1, 1975) that the New York Stock Exchange ended its fixed-commission rate requirement and permitted member firms to negotiate commission rates with customers.
Mean (alternatively, Expected Value)
A measure of central tendency of the probability distribution of a random variable that equals the weighted average of all possible outcomes using their probabilities as weights.
The outcome of a random variable where there is an equal probability of observing a value greater or less than it.
Member Corporation
See Member Firm.
Member Firm (alternatively, Member Corporation or Member Organization)
A brokerage firm with one or more memberships in an organized security exchange.
Member Organization
See Member Firm.
A form of corporate takeover in which two firms combine their operations and be-come one firm. Mergers are usually negotiated by the management of the two merging corporations.
Minus Tick
A trade in a security made at a price lower than the price of the previous trade in that same security.
Mispriced Security
A security that is trading at a price substantially different from its in-vestment value.
The outcome of a random variable that has the highest probability of occurring.
Modified Duration
The duration of a bond divided by the quantity I plus the bond's yield. For a 1% change in yields, it measures the percentage change (in the opposite direc tion) of the bond's price.
Money Market Deposit
A short-term fixed income security.
Money Markets
Financial markets in which financial assets with a term to maturity of typically one year or less are traded.
Moral Hazard
A problem in pricing insurance where the likelihood of the insured event's occurring increases after insurance is purchased.
Mortgage Bond
A bond that is secured by the pledge of specific property. In the event of de-fault, bondholders are entitled to obtain the property in question and to sell it to satisfy their claims on the issuer.
M-Squared (M2)
An ex post risk-adjusted measure of portfolio performance that compares a portfolio's average return with what it would have earned if the portfolio had been in-vested with the same degree of total risk as the market portfolio.
Multinational Firm
A corporation that carries on a substantial portion of its business in counties other than the country in which it is domiciled.
Multiple-Growth Model
A type of dividend discount model in which dividends are assumed to grow at different rates over specifically defined time periods.
Municipal Bond
A bond issued by a state or local unit of government.
Mutual Fund
See Open-End Investment Company.
Naked Call Writing
The process of writing a call option on a stock that the option writer does not own.
NASDAQ International
An early morning system for trading NYSE, AMEX, and NASDAQ secu rities through the use of a dealer network.
National Association of Securities Dealers (NASD)
A self-regulatory agency that establishes rules and regulations and monitors the activities of brokers and dealers in the over-the-counter market.
National Association of Securities Dealers Automated Quotations (NASDAQ)
An automated nationwide communications network operated by the NASD that connects dealers and brokers in the over-the-counter market. NASDAQ provides current market-maker bid and asked price quotes to market participants.
National Best Bid or Offer (NBBO)
See Inside Quotes.
National Market System (NASDAQ/NMS)
A segment of the over-the-counter market composed of issues with relatively large trading volumes. More detailed trading information is provided on stocks included in NASDAQ/NMS than on other over-the-counter stocks.
Neglected-Firm Effect
An empirical observation that firms followed by relatively few security analysts have had abnormally high returns.
Net Asset Value
The market value of an investment company's assets, less any liabilities, divided by the number of shares outstanding.
Net Present Value
The present value of future cash flows expected to be received from a particular investment less the cost of that investment.
No-Growth Model
See Zero-Growth Model.
No-Load Fund
A mutual fund that does not have a load charge.
Nominal Return
The percentage change in the value of a financial asset, where the beginning and ending values of the asset are not adjusted for inflation over the time of the investment.
Nonfactor Risk (alternatively, Idiosyncratic Risk)
The portion of a security's total risk that is not related to moves in various common factors and, hence, can be diversified away.
Non-Market Risk
See Unique Risk.
A condition whereby investors are assumed to always prefer higher levels of terminal wealth to lower levels of terminal wealth.
Normal Backwardation
A relationship between the futures price of an asset and the expected spot price of the asset on the delivery date of the contract. Normal backwardation states that the futures price should be less than the expected spot price.
Normal Contango
A relationship between the futures price of an asset and the expected spot price of the asset on the delivery date of the contract. Normal contango states that the futures price should be greater than the expected spot price.
Normal Distribution
A symmetric bell-shaped probability distribution, completely described by its mean and standard deviation.
Normative Economics
A form of economic analysis that is prescriptive in nature, dealing with what "ought to be."
Odd Lot
An amount of stock that is less than the standard unit of trading, generally from 1 to 99 shares.
Offer Price
See Asked Price.
On-the-Run Issue
The most recently issued Treasury security of a particular maturity.
See Opening Price.
Opening Price (alternatively, Open)
The price at which the first trade of the day took place in a particular stock.
Open Interest
The number of a particular futures contract that are outstanding at a particular point in time.
Open Order (alternatively, Good-Till-Canceled Order)
A trading order that remains in effect until it is either filled or canceled by the investor.
Operating Expense Ratio
The percentage of an investment company's assets that were used to pay for management fees, administrative expenses, and other operating expenses in a given year.
Opportunity Set
See Feasible Set.
Optimal Portfolio
The feasible portfolio that offers an investor the maximum level of satisfaction. This portfolio represents the tangency between the efficient set and an indifference curve of the investor.
Option on Futures
See Futures Option.
Order Book Officials
The people who keep the limit order book in those option markets that involve market-makers instead of specialists.
Ordinary Least Squares
See Simple Linear Regression.
Organized Exchange
A central physical location where trading of securities is done under a set of rules and regulations.
Original Issue Discount (OID)
Security A bond that was originally issued at a price below its par value.
Out of the Money
In the case of a call option, an option whose exercise price is greater than the market price of its underlying asset. In the case of a put option, an option whose exercise price is less than the market price of its underlying asset.
Out-of-Sample Data (alternatively, Holdout Sample)
In the context of constructing a security valuation model, information that is obtained from periods different from those used to estimate the valuation model. Out-of-sample data can be used to test the model's validity.
Over-the-Counter Market (OTC Market)
A secondary market for securities distinct from an organized security exchange.
Overmargined (alternatively, Unrestricted)
A situation in which the actual margin in a mar-gin account has risen above the initial margin requirement.
Overpriced Security (alternatively, Overvalued Security)
A security whose expected return is less than its equilibrium expected return. Equivalently, a security with a negative alpha.
Overvalued Security
See Overpriced Security.
Pac-Man Defense
A strategy used by corporations to ward off hostile takeovers. The targeted company reverses the takeover effort and seeks to acquire the firm making the initial takeover attempt.
Participating Bond
A bond that promises to pay a stated rate of interest to its owner but may also pay additional interest if the issuer's earnings exceed a specified level.
Participation Certificate
A bond that represents an ownership interest in a pool of fixed-income securities. The holders of the certificates receive the interest and principal payments on the pooled securities in proportion to their ownership of the pool.
Par Value of Stock
The nominal value of shares of common stock as legally carried on the books of a corporation.
Par Value of Bond
See Principal.
Passive Investment System (alternatively, Passive Management)
The process of buying and holding a well-diversified portfolio.
Passive Management
See Passive Investment System.
Payment for Order Flow
A form of preferencing whereby a dealer pays cash to a broker in order to receive trades from the broker for execution.
Payout Ratio
The percentage of a firm's earnings paid to shareholders in the form of cash dividends.
The process by which investment hankers attempt to stabilize the price of an underwritten security in the secondary market for a period of time after the initial offering date.
Perfect Markets
Security markets in which no impediments to investing exist. These impediments include finite divisibility of securities, taxes, transaction costs, and costly information.
Performance Attribution
The identification of sources of returns for a portfolio or security over a particular evaluation interval of time.
Performance Margin
The initial margin that must be posted by a futures buyer or seller.
Pink Sheets
Written published quotations on over-the-counter stocks that are not listed on NASDAQ.
Plus Tick
See Up Tick.
Poison Pill Defense
A strategy used by corporations to ward off hostile takeovers. The targeted company gives its shareholders certain rights that can be exercised only in the event of a hostile takeover, and that, once exercised, will be extremely onerous to the acquirer.
Political Risk
The uncertainty in the return on a foreign financial asset owing to the possibility that the foreign government might take actions that are detrimental to the investor's financial interests.
Portfolio Construction (alternatively, Security Selection)
A component of the investment process that involves identifying which assets to invest in and determining the proportion of funds to invest in each of the assets.
Portfolio Insurance
An investment strategy designed to earn a minimum rate of return while allowing the investor to benefit substantially from the positive returns generated by an investment in a risky portfolio.
Portfolio Manager
An individual who uses the information provided by fInnancial analysts to construct a portfolio of financial assets.
Portfolio Performance Evaluation
A component of the investment process involving periodic analysis of how a portfolio performed in terms of both returns earned and risk incurred.
Portfolio Revision
A component of the investment process, involving periodically repeating the process of setting investment policy, conducting security analysis, and constructing a portfolio.
Portfolio Turnover Rate
A measure of how much buying and selling occurs in a portfolio over a given period of time.
Positive Economics
A form of economic analysis that is descriptive in nature, dealing with "what is."
A standing arrangement on the part of a broker of taking trade orders from customers and sending those orders for execution to a specific dealer.
Preferred Habitat Theory
An explanation of the term structure of interest rates. Similar to the market segmentation theory, it holds that various investors and borrowers have segments of the market in which they prefer to operate. However, these investors are assumed to be willing to leave their desired maturity segments if there are significant differences in yields between the various segments.
Preferred Stock
A hybrid form of security that has characteristics of both common stocks and bonds.
The price of an option contract.
Price-Earnings Ratio
A corporation's current stock price divided by its earnings per share.
Price Impact
The effect on the price of a security resulting from a trade in that security. Price impact is the result of several factors, including size of the trade, demand for immediate liquidity, and presumed information of the individual or organization placing the order.
The price of a security at the end of one period divided by its price at the end of the previous period.
Price-Weighted Market Index
A market index in which the contribution of a security to the value of the index is based solely on the security's current market price.
Primary Market
The market in which securities are sold at the time of their initial issuance.
Principal (alternatively, Face Value or Par Value of Bond)
The nominal value of a bond that is promised to be repaid to bondholders at the maturity date.
Private Placement
The direct sale of a newly issued security to a small number of institutional or high networth investors.
Probabilistic Forecasting
A form of security analysis that begins with a series of economic scenarios, along with their respective probabilities of occurrence. Under each of these scenarios, accompanying projections are made as to the prospects for various industries, companies, and stock prices.
Probability Distribution
A model describing the relative frequency of possible values that a random variable can assume.
Professional Money Manager
An individual or organization that invests funds on behalf of others.
Program Trading
The purchase or sale of a collection of securities as if the collection were one security. Program trades are prominently employed in portfolio insurance and index arbitrage strategies.
Promised Yield-to-Maturity
The yield-to-maturity on a bond calculated on the assumption that all promised cash flows are received on a full and timely basis.
The signing by a shareholder of a power of attorney, thereby authorizing a designated party to cast all of the shareholder's votes on any matter brought up at the corporation's annual meeting.
Proxy Fight
An attempt by dissident shareholders to solicit proxies to vote against corporate incumbents.
Purchasing Group
See Syndicate.
Purchasing-Power Risk
The risk experienced by investors in financial assets owing to uncertainty concerning the impact of inflation on the real returns produced by those financial assets.
Pure-Discount Security (alternatively, Zero-Coupon Security)
A security that promises to make only one payment to its owner at the security's maturity date.
Pure Factor Play
See Pure Factor Portfolio.
Pure Factor Portfolio (alternatively, Pure Factor Play)
A portfolio that possesses a unit sensitivity to one factor and no sensitivity to any other factor and has zero nonfactor risk.
Pure Yield Pickup Swap
A type of bond swap whereby an investor exchanges one bond for another to obtain a higher yield over the long term, with little attention paid to the near-term outlook for the bonds' respective market segments or for the market as a whole.
Putable Bond
A bond that offers the owner the option to present the bond to the issuer in ex-change for cash equal to the bond's face value during a time period stated in the indenture.
Put-Call Parity
The relationship between the market price of a put and a call that have the same exercise price, expiration date, and underlying stock.
Put Option
A contract that gives the buyer the right to sell a specific number of shares of a company to the writer at a specific price within a specific time period.
Random Diversification
The process of creating diversification in a portfolio by randomly selecting securities without regard to the standard deviations and correlations of the securities.
Random Error Term
The difference between the actual value of a random variable and the predicted value based on some model.
Random Variable
A variable that takes on alternative values according to chance.
Random Walk (or Random Walk Model)
In general, a situation in which changes in the value of a random variable are independent and identically distributed. When applied to common stocks, it refers to a situation in which security price changes are independent and identically distributed, meaning that the size of a security's price change from one period to the next can be viewed as being determined by the spin of a roulette wheel.
Random Walk with Drift
A situation in which security prices follow a random walk, except that those prices are expected to rise over time.
Rate Anticipation Swap
A type of bond swap whereby an investor exchanges bonds that are expected to perform relatively poorly for those that are expected to perform relatively well, given an anticipated movement in interest rates.
Rate of Return
The percentage change in the value of an investment in a financial asset (or portfolio of financial assets) over a specified time period.
Real Estate Investment Trust (REIT)
An investment fund, similar to an investment company, whose investment objective is to hold primarily real estate–related assets, either through mortgages, construction and development loans, or equity interests.
Real Investment
An investment involving some kind of tangible asset, such as land, equipment, or buildings.
Realized Capital Gain (or Loss)
A capital gain (or loss) on an asset that is recognized, for tax purposes, through the sale or exchange of the asset.
Real Return
The percentage change in the value of an investment in a financial asset, where the beginning and ending values of the asset are adjusted for inflation over the time of the investment.
Redemption Fee
A fee levied by an investment company when an investor sells his or her shares back to the investment company within a specified period of time after the purchase.
Red Herring
A preliminary prospectus that provides much of the information in the final prospectus but is not an offer to sell the security, nor does it display an actual offering price.
Regional Brokerage Firm
An organization offering brokerage services that specializes in trading the securities of companies located in a particular region of the country.
Regional Exchange
An organized exchange that specializes in trading the securities of companies located in a particular region of the country.
Registered Bond
A bond for which the owner is registered with the issuer. The bondholder receives coupon payments directly from the issuer. Ownership changes require notification of the issuer.
Registered Competitive Market-Maker
See Floor Trader.
Registered Representative
See Account Executive.
Registered Trader
See Floor Trader.
A designated agent of a corporation responsible for canceling and issuing shares of stock in the corporation as these shares are issued or traded.
Registration Statement
A document filed with the Securities and Exchange Commission prior to initiating a public security offering.
Reinvestment-Rate Risk
The uncertainty in the return on a fixed-income asset caused by unanticipated changes in the interest rate at which cash flows from the asset can be reinvested.
Replacement Cost Accounting
The use of estimated replacement costs instead of historical book-value costs when calculating corporate earnings.
Repo Rate
The rate of interest involved in a repurchase agreement.
Reported Earnings
See Accounting Earnings.
Repurchase Agreement
A type of money market instrument that involves the sale of a financial asset from one investor to another. The investor selling the asset simultaneously agrees to repurchase it from the purchaser on a stated fixture date at a predetermined price, which is higher than the original transaction price.
Residual Standard Deviation
See Standard Deviation of the Random Error Term.
Restricted Account
A margin account in which the actual margin has fallen below the ini tial margin requirement but remains above the maintenance margin requirement.
Restricted Stock
See Letter Stock.
Retention Ratio
The percentage of a firm's earnings that are not paid to shareholders but instead are retained by the firm. Equivalently, one minus the payout ratio.
Return on Equity
The earnings of a firm divided by the firm's book value.
Return-Generating Process
A statistical model that describes how the returns on a security are produced.
Revenue Bond
A municipal bond that is backed solely by the revenues from a designated project, authority, or agency or by the proceeds from a specific tax.
Reverse Stock Split
A form of stock split whereby the number of shares is reduced and the par value per share is increased.
Reversing Trade
The purchase or sale of a futures or options contract designed to offset, and thereby cancel, the previous sale or purchase of the same contract.
Reward-to-Variability Ratio
See Sharpe Ratio.
Reward-to-Volatility Ratio (Treynor Ratio)
An ex post risk-adjusted measure of portfolio performance where risk is defined as the market risk of the portfolio. Mathematically, over an evaluation period, it is the excess return of a portfolio divided by the beta of the portfolio.
Rights Offering
The sale of new stock conducted by offering the stock to existing share holders in proportion to the number of shares owned by each shareholder.
The uncertainty associated with the end-of-period value of an investment.
Risk-Adjusted Return
The return on an asset or portfolio, modified to explicitly account for the risk to which the asset or portfolio is exposed.
Risk-Averse Investor
An investor who prefers an investment with less risk over one with more risk, assuming that the two investments offer the same expected return.
Riskfree Asset
An asset whose return over a given holding period is certain and known at the beginning of the holding period.
Riskfree Borrowing
The act of borrowing funds that are to be repaid with interest calculated at the riskfree rate.
Riskfree Lending (or Riskfree Investing)
The act of investing in a riskfree asset.
Risk-Neutral Investor
An investor who has no preference between investments with varying levels of risk, assuming that the investments offer the same expected return.
Risk Premium
The difference between the expected yield-to-maturity of a risky bond and the expected yield-to-maturity of a same-maturity default-free bond.
Risk-Seeking Investor
An investor who prefers an investment with more risk over one with less risk, assuming that the two investments offer the same expected return.
Risk Structure
The set of yields-to-maturity among bonds that possess different degrees of default risk but are similar with respect to other attributes.
Risk Tolerance
The tradeoff between risk and expected return demanded by a particular investor.
Round Lot
An amount of stock that is equal to a standard unit of trading, generally 100 shares or a multiple of 100 shares.
See Coefficient of Determination.
Foregone consumption. Also, the difference between current income and current consumption.
See Local.
SEAQ Automated Execution Facility (SAEF)
A small-order execution system, similar to the Small Order Execution System of NASDAQ, that is used on the London Stock Exchange.
The designation of membership in an organized exchange. By holding a seat, the member has the privilege of being able to execute trades using the facilities provided by the exchange.
Secondary Distribution
A means of selling a block of stock whereby the shares are sold away from an organized exchange after the close of trading in a manner similar to the sale of new issues of common stock.
Secondary Market
The market in which securities are traded that have been issued at some previous point in time.
In the context of a specific asset class, or collection of financial assets that have common distinguishing financial characteristics.
Sector Factor
A factor that affects the return on securities within a particular sector.
Sector-Factor Model
A special kind of multiple-factor model in which some of the factors are particular industries or economic sectors.
Sector Selection
A component of the security selection process involving the identification of desirable combinations of sectors within an asset class.
Securities and Exchange Commission (SEC)
A federal agency established by the Securities Exchange Act of 1934 that regulates the issuance of securities in the primary market and the trading of securities in the secondary market.
Securities Investor Protection Corporation (SIPC)
A quasigovernmental agency that insures the accounts of brokerage firms against loss owing to any of the firms' failure.
Securities Lending
The process of making available securities owned by one investor to an other investor in the form of a loan. The borrower provides collateral to the lender to secure the loan and pays the lender a fee.
Security (alternatively, Financial Asset)
A legal representation of the right to receive future benefits under stated conditions.
Security Analysis
A component of the investment process that involves determining the prospective future benefits of a security, the conditions under which such benefits will be received, and the likelihood that such conditions will occur.
Security Analyst
See Financial Analyst.
Security Market
See Financial Market.
Security Market Line
Derived from the capital asset pricing model, a linear relationship between the expected returns on securities and the risk of those securities, with risk ex-pressed as the security's beta (or equivalently, the security's covariance with the market portfolio).
Security Selection
See Portfolio Construction.
An aspect of security analysis that entails forecasting the price movements of individual securities.
A method of governmental regulation whereby the rules and standards of conduct in security markets are set by firms that operate in these markets, subject to the oversight of various federal agencies such as the SEC and CFTC.
Selling Group
A group of investment banking organizations that, as part of a security un•• derwriting, are responsible for selling the security.
Semistrong-Form Market Efficiency
A level of market efficiency in which all relevant publicly available information is fully and immediately reflected in security prices.
See Factor Loading.
Separation Theorem
A feature of the capital asset pricing model that states that the optimal combination of risky assets for an investor can be determined without any knowledge about the investor's preferences toward risk and return.
Serial Bond
A bond issue with different portions of the issue maturing at different dates.
Settle (or Settlement) Price
The representative price for a futures contract determined during the closing period of the futures exchange.
¶Settlement Date
The date after a security has been traded on which the buyer must deliver cash to the seller and the seller must deliver the security to the buyer.
Sharpe Ratio (alternatively, Reward-to-Variability Ratio)
An ex post risk-adjusted measure of portfolio performance where risk is defined as the standard deviation of the portfolio's returns. Mathematically, over an evaluation period, it is the excess return of a portfolio divided by the standard deviation of the portfolio's returns.
Shelf Registration
Under Securities and Exchange Commission Rule 415, issuers may register securities in advance of their issuance and sell these securities up to a year later.

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