D,E Flashcards
Day count method
The method of calculating the number of
days between coupon payment dates for the
purposes of calculating the accrued interest
on debt securities. Four day count methods
used by different segments of the bond
market: actual/365, actual/actual,
actual/360, 30/360.
Debenture
A debt security that is backed only by full
faith and credit of the issuer, rather than a
specific asset.
Declining stage
The fourth and final stage of the industry
life cycle. This stage is characterized by
growth rates that are equal to or even less
than that of the overall economy.
Dedicated short-bias hedge fund
A hedge fund that holds both long and
short positions in equity securities, but
whose net position is consistently short.
See also Hedge fund.
Dedicated strategy
An investment strategy that uses debt
securities to meet specific targets and goals
Default
A failure to make timely payment of
interest or principal on a debt security, or to
otherwise comply with the provisions of the
security’s indenture. See also Default risk.
Default risk
The risk that an issuer of a debt security
may be unable to make timely principal
and interest payments. Sometimes referred
to as Credit risk. See also Credit analysis,
Credit rating, and Default
Defensive industry
An industry that tends to hold up well
when the economy is in a downtrend, but
does not grow as much as other industries
when the economy is expanding
Dependent variable
A variable assumed to be influenced by
another variable.
Descending triangle
A triangle with a horizontal support line
and a negatively sloped trend line acting as
resistance. See also Ascending triangle,
Symmetrical triangle, and Triangle.
Directional hedge fund
A hedge fund that bets on anticipated
movements in the market prices of equity
securities, debt securities, foreign
currencies, and commodities. Directional
hedge funds have high exposure to trends in
the underlying market. See also Hedge
fund.
Discounted
A term used to denote that all available
information about a security or the market
as a whole is factored into their prices.
Discounted cash flow mode
A valuation model that assumes that a
stock’s intrinsic value is equal to the present
value of a stream of future cash flows.
Distressed securities hedge fund
A hedge fund that invests in the equity or
debt securities of companies that are in
financial difficulty and face bankruptcy or
reorganization. See also Hedge fund.
A hedge fund that invests in the equity or
debt securities of companies that are in
financial difficulty and face bankruptcy or
reorganization. See also Hedge fund.
A payment of cash or securities from a
company, mutual fund, or investment trust
to shareholders or unitholders.
Diversification
Combining less than perfectly positively
correlated securities into a portfolio to
lower the unsystematic risk of the portfolio
relative to that of the individual securities.
See also Correlation coefficient.
Dividend
A distribution of cash (or in some cases common shares) to shareholders in proportion to the number of shares they own. Dividends are paid only when approved by the company’s Board of Directors. See also Regular dividend, Extra dividend, and Stock dividend.
Dividend discount model
A valuation model that assume that a stock’s
intrinsic value is equal to the present value
of a stream of future dividends.
Dividend rate
The fixed dividend paid on preferred shares.
The dividend rate may be a dollar amount
or a percentage of par value. See also
Preferred share and Par value.
Dollar duration
The approximate dollar change of a bond
or bond portfolio given for a given change
in yield. See also Duration, Macaulay
duration, and Modified duration.
Dollar return
The increase or decrease in the dollar value
of a portfolio over a certain evaluation
period, plus the value of any withdrawals
and minus the value of any contributions.
See also Evaluation period.
Dollar-weighted return
A measure of a portfolio’s return as
experienced by the investor. Also known
as the Money- weighted return. See also
Time-weighted return.
Down trendline
A line drawn on a chart that connects
a series of descending highs. See also
Trendline and Up trendline
Duration
A measure of bond price volatility that
takes into the effect of the bond’s coupon
rate and time to maturity. All else being
equal, the higher the duration of a bond,
the greater its risk. See also Dollar
duration, Macaulay duration and
Modified duration.
Dynamic asset allocation
Rebalancing the portfolio to the long-term,
strategic asset mix. Also known as Portfolio
rebalancing.
Earnings forecast
An analyst estimate of a company’s future
earnings per share.
Earnings per share
A company’s profit or loss divided by the
weighted-average number of common
shares outstanding. See also Basic earnings
per share and Fully diluted earnings per
share.
Earnings retention rate
The percentage of net earnings not paid out
as dividends.
Econometrics
The use of computer analysis and modeling
to analyze mathematically the relationship
between key economic variables
Economic forecast
An economist’s or economics department’s
prediction for the outcome of a particular
economic indicator or event.
Economies of scale
A barrier to entry that results in higher
costs for companies without significant
market share.
Economist
An analyst who researches, collects, and
analyzes economic data, monitors economic
trends, and develops economic forecasts.
See also Equity analyst, Investment
strategist, Quantitative analyst, and
Technical analyst.
Efficient frontier
The set of all efficient portfolios
Efficient market hypothesis
A theory that states that asset prices fully
reflect all available information in efficient
markets. The theory has three different
forms, known as the strong form, the
semi-strong form, and the weak form. Each
form assumes that a different amount of
information is reflected in asset prices.
Efficient portfolio
The portfolio that an investor chooses to
hold that provides the highest return for a
given level of risk or the lowest risk for a
given level of return.
Emerging growth stage
See pioneering stage.
Emerging market hedge fund
A hedge fund that invests in equity and
debt securities of companies based in
emerging markets. See also Hedge fund.
Emotional bias
A mental state that arises spontaneously,
rather than through conscious effort.
Empathy
The ability to enter imaginatively into
another’s world to understand how the
other person feels.
Endogenous variable
A variable determined by one or more other
variables generated within a model.
Envelope
See Moving average envelopes.
Equity analyst
An analyst who uses fundamental analysis
to estimate the return and risk from an
investment in the common shares of
companies in a coverage universe, which is
normally defined by an industry or sector.
Also known as a research analyst or a
company analyst. See also Coverage
universe, Economist, Investment
strategist, Quantitative strategist, and
Technical analyst.
Equity collar structure
An equity monetization structure where the
shareholder buys a put option on a fixed
number of shares from the bank, with a
predetermined strike price per share. The
put option matures on a specified date in
the future. To offset the cost of purchasing
the put option, the shareholder sells a call
option to the bank with the same expiry
date as the put option. The shareholder is
provided with a loan against the collared
position.
Equity market-neutral hedge fund
A hedge fund designed to exploit equity
market inefficiencies and opportunities by
creating simultaneously long and short
matched equity portfolios of approximately
the same size. See also Hedge fund
Equity monetization
A mechanism offered by banks and their
investment dealer subsidiaries that allows
individuals to hedge the price exposure of a
concentrated position in a publicly listed
stock and raise money against that hedged
position cost-effectively
Eurobond
A debt security issued and sold outside a
domestic market that is typically
denominated in a currency other than that
of the domestic market. See also Foreign
bond.
Evaluation period
The time period over which a portfolio’s performance is being measured and evaluated. See also Performance measurement and Performance evaluation
Event-driven hedge fund
A hedge fund that seeks to profit from
unique events such as mergers, acquisitions,
stock splits, and buybacks. Event-driven
hedge funds have medium exposure to the
underlying market direction. See also
Hedge fund.
Exchangeable bond
A debt security that is convertible into
another debt security at the option of the
holder. See also Convertible bond.
Exchangeable debenture structure
An equity monetization structure where the shareholder issues to the bank an exchangeable debenture with a term to maturity of 20 to 25 years in exchange for cash.
Exchange-traded fund (ETF)
An ETF represents shares in a basket of
securities, which may be indexes, stocks,
bonds or commodities. An ETF is publicly
listed on a stock exchange and combines
certain features of mutual funds and
closed-end funds. See also Mutual fund
and Closed-end fund.
Exclusion
A qualitative notion of risk in which an
investor is fearful of missing out on a rally
in a particular investment or asset class.
Ex-dividend date
The first day that purchasers of a company’s
shares are not entitled to a declared
dividend. Because stock trades settle three
business days after the trade date, stocks
begin to trade ex-dividend on the second
business day before the record date. See also
Dividend and Record date.
Execution stage
The second stage of the investment
management process encompassing a single
step: select securities. See also Feedback
stage and Planning stage.
Exogenous variable
A variable not determined within a model.
Expansion stage
The second stage of the industry life cycle.
This stage is characterized by healthy and
continuous growth rates.
Exponential moving average
A type of moving average that gives more
weight to recent prices than it does to older
prices. See also Moving average, Simple
moving average, and Weighted moving
average.
Extra dividend
A special, one-time dividend paid in addition to regular dividends, usually because the company has a lot of cash on its statement of financial position and no opportunity to invest in ongoing or new business ventures. See also Dividend, Regular dividend, and Stock dividend
